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. That downside risk was realized by Mene Inc. (CVE:MENE) shareholders over the last year, as the share price declined 43%. That contrasts poorly with the market decline of 12%. Mene may have better days ahead, of course; we’ve only looked at a one year period. The falls have accelerated recently, with the share price down 30% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 18% in the same timeframe.
See our latest analysis for Mene
Given that Mene didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. 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.
Mene grew its revenue by 100% over the last year. That’s well above most other pre-profit companies. Given the revenue growth, the share price drop of 43% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it’s worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there’s value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
TSXV:MENE Income Statement May 6th 2020
If you are thinking of buying or selling Mene stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Mene shareholders are down 43% for the year, even worse than the market loss of 12%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. The share price decline has continued throughout the most recent three months, down 30%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Mene , and understanding them should be part of your investment process.
Of course Mene 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 CA exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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