Intelsat S.A. (NYSE:I) shareholders might understandably be very concerned that the share price has dropped 72% in the last quarter. But that doesn't change the fact that the returns over the last three years have been very strong. In fact, the share price is up a full 164% compared to three years ago. After a run like that some may not be surprised to see prices moderate. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
Given that Intelsat didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last 3 years Intelsat saw its revenue shrink by 1.2% per year. So we wouldn't have expected the share price to gain 38% per year, but it has. It's a good reminder that expectations about the future, not the past history, always impact share prices.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Intelsat is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Intelsat in this interactive graph of future profit estimates.
A Different Perspective
Investors in Intelsat had a tough year, with a total loss of 68%, against a market gain of about 27%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 15% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Intelsat you should know about.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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