As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So take a moment to sympathize with the long term shareholders of Frankly Inc. ( CVE:TLK ), who have seen the share price tank a massive 84% over a three year period. That would certainly shake our confidence in the decision to own the stock. Even worse, it's down 55% in about a month, which isn't fun at all.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Because Frankly is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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 three years, Frankly saw its revenue grow by 9.2% per year, compound. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 46% per year is due to the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Frankly's earnings, revenue and cash flow .
A Different Perspective
Frankly shareholders are down 16% for the year, falling short of the market return. Meanwhile, the broader market slid about 0.7%, likely weighing on the stock. However, the loss over the last year isn't as bad as the 46% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Frankly is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . 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. Thank you for reading.