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Volatility 101: Should Grafenia (LON:GRA) Shares Have Dropped 46%?

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Simply Wall St
·3 min read
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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Grafenia Plc (LON:GRA), since the last five years saw the share price fall 46%. Unhappily, the share price slid 5.3% in the last week.

Check out our latest analysis for Grafenia

Given that Grafenia didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.

In the last half decade, Grafenia saw its revenue increase by 7.5% per year. That's a fairly respectable growth rate. Shareholders have seen the share price fall at 12% per year, for five years: a poor performance. Those who bought back then clearly believed in stronger growth - and maybe even profits. There is always a big risk of losing money yourself when you buy shares in a company that loses money.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

AIM:GRA Income Statement, January 30th 2020
AIM:GRA Income Statement, January 30th 2020

Take a more thorough look at Grafenia's financial health with this free report on its balance sheet.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Grafenia's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Grafenia's TSR, which was a 42% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

Grafenia shareholders are down 18% for the year, but the market itself is up 15%. 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 10% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that Grafenia is showing 5 warning signs in our investment analysis , and 2 of those are potentially serious...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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