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 MMA Offshore Limited (ASX:MRM) during the five years that saw its share price drop a whopping 89%. And we doubt long term believers are the only worried holders, since the stock price has declined 51% over the last twelve months. Furthermore, it’s down 55% in about a quarter. That’s not much fun for holders. Of course, this share price action may well have been influenced by the 23% decline in the broader market, throughout the period.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Because MMA Offshore made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade MMA Offshore reduced its trailing twelve month revenue by 31% for each year. That’s definitely a weaker result than most pre-profit companies report. So it’s not that strange that the share price dropped 36% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at MMA Offshore’s financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
We’ve already covered MMA Offshore’s share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for MMA Offshore shareholders, and that cash payout explains why its total shareholder loss of 88%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
We regret to report that MMA Offshore shareholders are down 51% for the year. Unfortunately, that’s worse than the broader market decline of 13%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 34% 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. Even so, be aware that MMA Offshore is showing 3 warning signs in our investment analysis , you should know about…
Of course MMA Offshore may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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. Thank you for reading.
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