Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held FirstWave Cloud Technology Limited (ASX:FCT) for five whole years - as the share price tanked 74%. And some of the more recent buyers are probably worried, too, with the stock falling 28% in the last year. More recently, the share price has dropped a further 15% in a month.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
FirstWave Cloud Technology isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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, FirstWave Cloud Technology saw its revenue increase by 7.7% per year. That's a pretty good rate for a long time period. So it is unexpected to see the stock down 12% per year in the last five years. The truth is that the growth might be below expectations, and investors are probably worried about the continual losses.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between FirstWave Cloud Technology's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. FirstWave Cloud Technology hasn't been paying dividends, but its TSR of -70% exceeds its share price return of -74%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
FirstWave Cloud Technology shareholders are down 28% for the year, but the market itself is up 4.3%. 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 11% 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. To that end, you should learn about the 4 warning signs we've spotted with FirstWave Cloud Technology (including 2 which are potentially serious) .
We will like FirstWave Cloud Technology better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.