It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Marlborough Wine Estates Group Limited (NZSE:MWE) shareholders over the last year, as the share price declined 41%. That contrasts poorly with the market decline of 1.9%. We wouldn't rush to judgement on Marlborough Wine Estates Group because we don't have a long term history to look at.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Marlborough Wine Estates Group
Marlborough Wine Estates Group 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 year Marlborough Wine Estates Group saw its revenue grow by 5.2%. That's not a very high growth rate considering it doesn't make profits. Given this lacklustre revenue growth, the share price drop of 41% seems pretty appropriate. It's important not to lose sight of the fact that profitless companies must grow. But if you buy a loss making company then you could become a loss making investor.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Marlborough Wine Estates Group's financial health with this free report on its balance sheet.
A Different Perspective
While the broader market lost about 1.9% in the twelve months, Marlborough Wine Estates Group shareholders did even worse, losing 41%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Marlborough Wine Estates Group , and understanding them should be part of your investment process.