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Some Katanga Mining (TSE:KAT) Shareholders Have Taken A Painful 88% Share Price Drop

Simply Wall St
·3 mins read

It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held Katanga Mining Limited (TSE:KAT) during the last year don't lose the lesson, in addition to the 88% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. To make matters worse, the returns over three years have also been really disappointing (the share price is 85% lower than three years ago). Furthermore, it's down 50% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 24% decline in the broader market, throughout the period.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Katanga Mining

Katanga Mining isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong 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 twelve months, Katanga Mining increased its revenue by 9.6%. That's not a very high growth rate considering it doesn't make profits. Even so you could argue that it's surprising that the share price has tanked 88%. Clearly the market was expecting better, and this may blow out projections of profitability. If and only if this company is still likely to succeed, just a little slower, this could be a good opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

TSX:KAT Income Statement April 4th 2020
TSX:KAT Income Statement April 4th 2020

If you are thinking of buying or selling Katanga Mining stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We regret to report that Katanga Mining shareholders are down 88% for the year. Unfortunately, that's worse than the broader market decline of 22%. 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 26% 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. For instance, we've identified 5 warning signs for Katanga Mining (3 are potentially serious) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.