Yahoo Finance Investors in Lucara Diamond (TSE:LUC) have unfortunately lost 73% over the last five years
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. For example, we sympathize with anyone who was caught holding Lucara Diamond Corp. (TSE:LUC) during the five years that saw its share price drop a whopping 76%. Shareholders have had an even rougher run lately, with the share price down 16% in the last 90 days.
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.
Check out our latest analysis for Lucara Diamond
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
While the share price declined over five years, Lucara Diamond actually managed to increase EPS by an average of 0.3% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
The revenue fall of 0.9% per year for five years is neither good nor terrible. But it's quite possible the market had expected better; a closer look at the revenue trends might explain the pessimism.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Lucara Diamond has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Lucara Diamond'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 Lucara Diamond'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 Lucara Diamond's TSR, which was a 73% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
While the broader market lost about 6.6% in the twelve months, Lucara Diamond shareholders did even worse, losing 18%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn't as bad as the 12% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like Lucara Diamond 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 CA exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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