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 Sprott Resource Holdings Inc. (TSE:SRHI) share price is down 33% in the last year. That's disappointing when you consider the market returned 3.0%. We wouldn't rush to judgement on Sprott Resource Holdings because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 17% in the last 90 days.
Sprott Resource Holdings isn't a profitable company, so 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Sprott Resource Holdings grew its revenue by 113% over the last year. That's well above most other pre-profit companies. The share price drop of 33% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Sprott Resource Holdings's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While Sprott Resource Holdings shareholders are down 33% for the year, the market itself is up 3.0%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 17%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Sprott Resource Holdings 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.
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