If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term DroneShield Limited (ASX:DRO) shareholders. So they might be feeling emotional about the 61% share price collapse, in that time. The falls have accelerated recently, with the share price down 43% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
DroneShield wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last three years, DroneShield saw its revenue grow by 96% per year, compound. That's well above most other pre-profit companies. In contrast, the share price is down 27% compound, over three years - disappointing by most standards. It seems likely that the market is worried about the continual losses. But a share price drop of that magnitude could well signal that the market is overly negative on the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of DroneShield's earnings, revenue and cash flow.
A Different Perspective
Pleasingly, DroneShield's total shareholder return last year was 49%. This recent result is much better than the 27% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around -- or else regained the confidence of investors. 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. To that end, you should learn about the 7 warning signs we've spotted with DroneShield (including 2 which is can't be ignored) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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