As every investor would know, you don’t hit a homerun every time you swing. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. It must have been painful to be a Broo Limited (ASX:BEE) shareholder over the last year, since the stock price plummeted 83% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Because Broo hasn’t been listed for many years, the market is still learning about how the business performs. Furthermore, it’s down 46% in about a quarter. That’s not much fun for holders. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Because Broo 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Broo grew its revenue by 55% over the last year. That’s a strong result which is better than most other loss making companies. So on the face of it we’re really surprised to see the share price down 83% over twelve months. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. We’d recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that’s for sure. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
Take a more thorough look at Broo’s financial health with this free report on its balance sheet.
A Different Perspective
While Broo shareholders are down 83% for the year, the market itself is up 8.0%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 46%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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.