3 days ago
Shareholders in Coventry Group (ASX:CYG) are in the red if they invested a year ago
Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Coventry Group Ltd (ASX:CYG) have tasted that bitter downside in the last year, as the share price dropped 42%. That falls noticeably short of the market return of around 12%. To make matters worse, the returns over three years have also been really disappointing (the share price is 32% lower than three years ago). Shareholders have had an even rougher run lately, with the share price down 24% in the last 90 days.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.
We don't think that Coventry Group's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Coventry Group grew its revenue by 0.4% over the last year. While that may seem decent it isn't great considering the company is still making a loss. Given this lacklustre revenue growth, the share price drop of 42% seems pretty appropriate. It's important not to lose sight of the fact that profitless companies must grow. But if you buy a loss making company then you could become a loss making investor.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. 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 Coventry Group's earnings, revenue and cash flow.
Coventry Group shareholders are down 41% for the year (even including dividends), but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Coventry Group , and understanding them should be part of your investment process.
Coventry Group is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
