We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Denbury Resources Inc. (NYSE:DNR) during the five years that saw its share price drop a whopping 94%. And it's not just long term holders hurting, because the stock is down 77% in the last year. The falls have accelerated recently, with the share price down 50% in the last three months.
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.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Denbury Resources moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
It could be that the revenue decline of 17% per year is viewed as evidence that Denbury Resources is shrinking. This has probably encouraged some shareholders to sell down the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Denbury Resources stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Denbury Resources shareholders are down 77% for the year, but the market itself is up 3.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 42% over the last half decade. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Denbury Resources is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.