Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Pan American Silver Corp. (TSE:PAAS) share price is down 39% in the last year. That's well below the market decline of 2.9%. At least the damage isn't so bad if you look at the last three years, since the stock is down 12% in that time. Furthermore, it's down 29% in about a quarter. That's not much fun for holders.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Pan American Silver wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.
Pan American Silver grew its revenue by 12% over the last year. That's not a very high growth rate considering it doesn't make profits. Given this fairly low revenue growth (and lack of profits), it's not particularly surprising to see the stock down 39% in a year. In a hot market it's easy to forget growth is the life-blood of a loss making company. But if you buy a loss making company then you could become a loss making investor.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Pan American Silver's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market lost about 2.9% in the twelve months, Pan American Silver shareholders did even worse, losing 38% (even including dividends). 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% over the last half decade. 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. 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 1 warning sign for Pan American Silver 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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