U.S. markets close in 47 minutes
  • S&P 500

    4,298.16
    +18.01 (+0.42%)
     
  • Dow 30

    33,911.45
    +150.40 (+0.45%)
     
  • Nasdaq

    13,131.92
    +84.74 (+0.65%)
     
  • Russell 2000

    2,017.59
    +0.97 (+0.05%)
     
  • Crude Oil

    89.34
    -2.75 (-2.99%)
     
  • Gold

    1,794.90
    -20.60 (-1.13%)
     
  • Silver

    20.21
    -0.49 (-2.36%)
     
  • EUR/USD

    1.0162
    -0.0096 (-0.93%)
     
  • 10-Yr Bond

    2.7910
    -0.0580 (-2.04%)
     
  • GBP/USD

    1.2057
    -0.0082 (-0.68%)
     
  • USD/JPY

    133.2990
    -0.1810 (-0.14%)
     
  • BTC-USD

    24,078.06
    -226.61 (-0.93%)
     
  • CMC Crypto 200

    571.65
    -19.11 (-3.23%)
     
  • FTSE 100

    7,509.15
    +8.26 (+0.11%)
     
  • Nikkei 225

    28,871.78
    +324.80 (+1.14%)
     

Shareholders in Evolve Education Group (NZSE:EVO) are in the red if they invested five years ago

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Evolve Education Group Limited (NZSE:EVO) during the five years that saw its share price drop a whopping 92%. Shareholders have had an even rougher run lately, with the share price down 20% 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.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

View our latest analysis for Evolve Education Group

While Evolve Education Group made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last five years Evolve Education Group saw its revenue shrink by 0.7% per year. While far from catastrophic that is not good. The share price fall of 14% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. We're generally averse to companies with declining revenues, but we're not alone in that. Fear of becoming a 'bagholder' may be keeping people away from this stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Evolve Education Group in this interactive graph of future profit estimates.

What About The Total Shareholder Return (TSR)?

We've already covered Evolve Education Group'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. Its history of dividend payouts mean that Evolve Education Group's TSR, which was a 82% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 7.1% in the twelve months, Evolve Education Group shareholders did even worse, losing 19%. 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, longer term shareholders are suffering worse, given the loss of 13% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Evolve Education Group , and understanding them should be part of your investment process.

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 NZ 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here