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Shareholders in American Resources (NASDAQ:AREC) are in the red if they invested three years ago

·3 min read

Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of American Resources Corporation (NASDAQ:AREC) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 62% drop in the share price over that period. And more recent buyers are having a tough time too, with a drop of 52% in the last year. Even worse, it's down 41% in about a month, which isn't fun at all.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for American Resources

American Resources isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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 three years American Resources saw its revenue shrink by 80% per year. That means its revenue trend is very weak compared to other loss making companies. Arguably, the market has responded appropriately to this business performance by sending the share price down 17% (annualized) in the same time period. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. It could be a while before the company repays long suffering shareholders with share price gains.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

Take a more thorough look at American Resources' financial health with this free report on its balance sheet.

A Different Perspective

While the broader market lost about 9.4% in the twelve months, American Resources shareholders did even worse, losing 52%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that American Resources is showing 6 warning signs in our investment analysis , and 3 of those are concerning...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.