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Introducing Seven Generations Energy, The Stock That Dropped 42% In The Last Three Years

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Seven Generations Energy Ltd. (TSE:VII) shareholders have had that experience, with the share price dropping 42% in three years, versus a market return of about 29%. And more recent buyers are having a tough time too, with a drop of 32% in the last year. There was little comfort for shareholders in the last week as the price declined a further 5.7%.

View our latest analysis for Seven Generations Energy

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

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Seven Generations Energy became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it’s worth checking some other metrics too.

Revenue is actually up 52% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worht worth investigating Seven Generations Energy further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

TSX:VII Income Statement, March 5th 2019
TSX:VII Income Statement, March 5th 2019

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Seven Generations Energy in this interactive graph of future profit estimates.

A Different Perspective

Seven Generations Energy shareholders are down 32% for the year, but the broader market is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 16% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do 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 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.