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Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held Energy Resources of Australia Ltd (ASX:ERA) for five whole years - as the share price tanked 83%. We also note that the stock has performed poorly over the last year, with the share price down 53%. The falls have accelerated recently, with the share price down 31% in the last three months.
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.
Check out our latest analysis for Energy Resources of Australia
Because Energy Resources of Australia is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over half a decade Energy Resources of Australia reduced its trailing twelve month revenue by 13% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 30% per year in that period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Energy Resources of Australia shareholders are down 53% for the year, but the market itself is up 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 30% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. You could get a better understanding of Energy Resources of Australia's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.