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Those Who Purchased H2O Innovation (CVE:HEO) Shares Three Years Ago Have A 44% Loss To Show For It

Simply Wall St

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term H2O Innovation Inc. (CVE:HEO) shareholders, since the share price is down 44% in the last three years, falling well short of the market return of around 16%. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Check out our latest analysis for H2O Innovation

Because H2O Innovation is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over three years, H2O Innovation grew revenue at 22% per year. That's well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 17% per year. That seems like an unlucky result for holders. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

TSXV:HEO Income Statement, December 9th 2019

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. You can see what analysts are predicting for H2O Innovation in this interactive graph of future profit estimates.

A Different Perspective

H2O Innovation provided a TSR of 8.9% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 9.0% endured over half a decade. So this might be a sign the business has turned its fortunes around. 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.

H2O Innovation is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

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. Thank you for reading.