Introducing Xplore Wealth (ASX:XPL), The Stock That Tanked 79%
Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So spare a thought for the long term shareholders of Xplore Wealth Limited (ASX:XPL); the share price is down a whopping 79% in the last three years. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 52% in a year. Even worse, it's down 43% in about a month, which isn't fun at all. We do note, however, that the broader market is down 35% in that period, and this may have weighed on the share price.
View our latest analysis for Xplore Wealth
Given that Xplore Wealth 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, Xplore Wealth saw its revenue grow by 49% per year, compound. That is faster than most pre-profit companies. So on the face of it we're really surprised to see the share price down 41% a year in the same time period. You'd want to take a close look at the balance sheet, as well as the losses. Sometimes fast revenue growth doesn't lead to profits. If the company is low on cash, it may have to raise capital soon.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
We've already covered Xplore Wealth'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. Xplore Wealth's TSR of was a loss of 79% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market lost about 22% in the twelve months, Xplore Wealth shareholders did even worse, losing 52%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 19% per year over five years. We realise that Baron Rothschild 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Xplore Wealth (of which 1 is potentially serious!) you should know about.
Xplore Wealth is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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