It’s not a secret that every investor will make bad investments, from time to time. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So spare a thought for the long term shareholders of Katanga Mining Limited (TSE:KAT); the share price is down a whopping 83% in the last twelve months. That’d be a striking reminder about the importance of diversification. We note that it has not been easy for shareholders over three years, either; the share price is down 78% in that time. The falls have accelerated recently, with the share price down 38% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
Katanga Mining wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last twelve months, Katanga Mining increased its revenue by 9.6%. That’s not a very high growth rate considering it doesn’t make profits. Even so you could argue that it’s surprising that the share price has tanked 83%. Clearly the market was expecting better, and this may blow out projections of profitability. But if it will make money, albeit later than previously believed, this could be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
A Different Perspective
Katanga Mining shareholders are down 83% for the year, but the market itself is up 9.0%. 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 19% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too.