We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Valaris plc (NYSE:VAL) during the five years that saw its share price drop a whopping 96%. And we doubt long term believers are the only worried holders, since the stock price has declined 79% over the last twelve months. The last week also saw the share price slip down another 35%.
Valaris isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years Valaris saw its revenue shrink by 24% per year. That puts it in an unattractive cohort, to put it mildly. So it’s not that strange that the share price dropped 49% 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).
Valaris is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth.
A Different Perspective
Investors in Valaris had a tough year, with a total loss of 79%, against a market gain of about 13%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 48% 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. It’s always interesting to track share price performance over the longer term. But to understand Valaris better, we need to consider many other factors.