Even the best investor on earth makes unsuccessful investments. But it's not unreasonable to try to avoid truly shocking capital losses. It must have been painful to be a Farmers Edge Inc. (TSE:FDGE) shareholder over the last year, since the stock price plummeted 77% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. We wouldn't rush to judgement on Farmers Edge because we don't have a long term history to look at. Unfortunately the share price momentum is still quite negative, with prices down 15% in thirty days. We do note, however, that the broader market is down 8.1% in that period, and this may have weighed on the share price.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Given that Farmers Edge didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
Farmers Edge's revenue didn't grow at all in the last year. In fact, it fell 28%. That's not what investors generally want to see. The market obviously agrees, since the share price tanked 77%. Holders should not lose the lesson: loss making companies should grow revenue. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Farmers Edge will earn in the future (free profit forecasts).
A Different Perspective
Given that the market gained 7.1% in the last year, Farmers Edge shareholders might be miffed that they lost 77%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 14%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Farmers Edge better, we need to consider many other factors. Even so, be aware that Farmers Edge is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...
Farmers Edge is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.