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. Anyone who held CNX Resources Corporation (NYSE:CNX) for five years would be nursing their metaphorical wounds since the share price dropped 82% in that time. And it’s not just long term holders hurting, because the stock is down 52% in the last year. Even worse, it’s down 27% in about a month, which isn’t fun at all. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
CNX Resources isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong 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.
In the last five years CNX Resources saw its revenue shrink by 12% per year. That’s definitely a weaker result than most pre-profit companies report. So it’s not altogether surprising to see the share price down 29% per year in the same time period. We don’t think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between CNX Resources’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for CNX Resources shareholders, and that cash payout explains why its total shareholder loss of 78%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
While the broader market gained around 6.5% in the last year, CNX Resources shareholders lost 52%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 26% per year over five years. 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.