We're definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Athabasca Oil Corporation (TSE:ATH) for five years would be nursing their metaphorical wounds since the share price dropped 87% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 65% in the last year. Shareholders have had an even rougher run lately, with the share price down 17% 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.
Athabasca Oil isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over five years, Athabasca Oil grew its revenue at 49% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 34% each year, in the same time period. You'd have to assume the market is worried that profits won't come soon enough. While there might be an opportunity here, you'd want to take a close look at the balance sheet strength.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
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. If you are thinking of buying or selling Athabasca Oil stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While the broader market gained around 1.9% in the last year, Athabasca Oil shareholders lost 65%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 34% over the last half decade. We realise that Buffett 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 businesses. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.