We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Noble Corporation plc (NYSE:NE) for half a decade as the share price tanked 90%. We also note that the stock has performed poorly over the last year, with the share price down 30%. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Because Noble is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. 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 five years Noble saw its revenue shrink by 20% per year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 37% per year in that period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
Noble is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Noble stock, you should check out this free report showing analyst consensus estimates for future profits.
A Dividend Lost
The share price return figures discussed above don't include the value of dividends paid previously, but the total shareholder return (TSR) does. In some ways, TSR is a better measure of how well an investment has performed. Over the last 5 years, Noble generated a TSR of -87%, which is, of course, better than the share price return. Even though the company isn't paying dividends at the moment, it has done in the past.
A Different Perspective
While the broader market gained around 9.5% in the last year, Noble shareholders lost 30%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 33% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. You could get a better understanding of Noble's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.