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Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Anyone who held Lucara Diamond Corp. (TSE:LUC) for five years would be nursing their metaphorical wounds since the share price dropped 80% in that time. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Lucara Diamond moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
Arguably, the revenue drop of 12% a year for half a decade suggests that the company can't grow in the long term. That could explain the weak share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Lucara Diamond has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Lucara Diamond's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Lucara Diamond's TSR, which was a 77% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
Lucara Diamond shareholders gained a total return of 19% during the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 12% per year, over five years. It could well be that the business is stabilizing. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Lucara Diamond (of which 1 is a bit unpleasant!) you should know about.
We will like Lucara Diamond better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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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