Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Gulf Keystone Petroleum Limited (LON:GKP) for half a decade as the share price tanked 98%. And it's not just long term holders hurting, because the stock is down 68% in the last year. Shareholders have had an even rougher run lately, with the share price down 57% in the last 90 days.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Gulf Keystone Petroleum became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
In contrast to the share price, revenue has actually increased by 24% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Gulf Keystone Petroleum's balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We've already covered Gulf Keystone Petroleum's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Gulf Keystone Petroleum's TSR of was a loss of 98% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
We regret to report that Gulf Keystone Petroleum shareholders are down 65% for the year. Unfortunately, that's worse than the broader market decline of 11%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 54% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Gulf Keystone Petroleum is showing 2 warning signs in our investment analysis , you should know about...
But note: Gulf Keystone Petroleum may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.