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Volatility 101: Should Bod Australia (ASX:BDA) Shares Have Dropped 49%?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Bod Australia Limited (ASX:BDA) shareholders over the last year, as the share price declined 49%. That contrasts poorly with the market return of 7.3%. Longer term investors have fared much better, since the share price is up 28% in three years. It's down 13% in the last seven days.

View our latest analysis for Bod Australia

Because Bod Australia made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Bod Australia grew its revenue by 51% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 49% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

ASX:BDA Income Statement, March 2nd 2020

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. Dive deeper into the earnings by checking this interactive graph of Bod Australia's earnings, revenue and cash flow.

A Different Perspective

Over the last year, Bod Australia shareholders took a loss of 49%. In contrast the market gained about 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 8.5% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 6 warning signs for Bod Australia (1 is potentially serious) that you should be aware of.

Bod Australia 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 AU 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.