In This Article:
As every investor would know, you don't hit a homerun every time you swing. But it's not unreasonable to try to avoid truly shocking capital losses. So spare a thought for the long term shareholders of Ecofibre Limited (ASX:EOF); the share price is down a whopping 82% in the last twelve months. A loss like this is a stark reminder that portfolio diversification is important. We wouldn't rush to judgement on Ecofibre because we don't have a long term history to look at. Furthermore, it's down 61% in about a quarter. That's not much fun for holders.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
See our latest analysis for Ecofibre
Given that Ecofibre only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Ecofibre's revenue didn't grow at all in the last year. In fact, it fell 29%. That looks pretty grim, at a glance. The share price fall of 82% in a year tells the story. That's a stern reminder that profitless companies need to grow the top line, at the very least. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Ecofibre in this interactive graph of future profit estimates.
A Different Perspective
Given that the market gained 36% in the last year, Ecofibre shareholders might be miffed that they lost 82%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 61%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 4 warning signs for Ecofibre (1 is a bit unpleasant!) that you should be aware of before investing here.