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Volatility 101: Should Canacol Energy (TSE:CNE) Shares Have Dropped 38%?

Simply Wall St

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The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Canacol Energy Ltd (TSE:CNE), since the last five years saw the share price fall 38%.

View our latest analysis for Canacol Energy

Canacol Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last half decade, Canacol Energy saw its revenue increase by 2.6% per year. That's far from impressive given all the money it is losing. Given the weak growth, the share price fall of 9.0% isn't particularly surprising. Investors should consider how bad the losses are, and whether the company can make it to profitability with ease. Shareholders will want the company to approach profitability if it can't grow revenue any faster.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

TSX:CNE Income Statement, July 19th 2019

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. This free report showing analyst forecasts should help you form a view on Canacol Energy

A Different Perspective

It's good to see that Canacol Energy has rewarded shareholders with a total shareholder return of 5.6% in the last twelve months. Notably the five-year annualised TSR loss of 9.0% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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.

Canacol Energy 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 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 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. Thank you for reading.