While it may not be enough for some shareholders, we think it is good to see the Alio Gold Inc. (TSE:ALO) share price up 17% in a single quarter. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 93% lower after that period. So we don’t gain too much confidence from the recent recovery. The real question is whether the business can leave its past behind and improve itself over the years ahead.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Alio Gold 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years Alio Gold saw its revenue shrink by 11% per year. That’s definitely a weaker result than most pre-profit companies report. So it’s not that strange that the share price dropped 41% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Alio Gold in this interactive graph of future profit estimates.
A Different Perspective
Alio Gold shareholders are down 66% for the year, but the market itself is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 41% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 Alio Gold 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 CA exchanges.
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