Strong week for easyJet (LON:EZJ) shareholders doesn't alleviate pain of three-year loss
easyJet plc (LON:EZJ) shareholders should be happy to see the share price up 24% in the last month. Meanwhile over the last three years the stock has dropped hard. Regrettably, the share price slid 72% in that period. So the improvement may be a real relief to some. After all, could be that the fall was overdone.
While the last three years has been tough for easyJet shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
Check out our latest analysis for easyJet
Given that easyJet didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years easyJet saw its revenue shrink by 52% per year. That means its revenue trend is very weak compared to other loss making companies. And as you might expect the share price has been weak too, dropping at a rate of 20% per year. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think easyJet will earn in the future (free profit forecasts).
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between easyJet's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. easyJet's TSR of was a loss of 65% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
We regret to report that easyJet shareholders are down 44% for the year. Unfortunately, that's worse than the broader market decline of 8.9%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of easyJet by clicking this link.
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 GB 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.
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