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Petra Diamonds Limited (LON:PDL) shareholders should be happy to see the share price up 12% in the last month. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Five years have seen the share price descend precipitously, down a full 90%. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The million dollar question is whether the company can justify a long term recovery. 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.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
Check out our latest analysis for Petra Diamonds
Given that Petra Diamonds 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 hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, Petra Diamonds saw its revenue increase by 0.3% per year. That's not a very high growth rate considering it doesn't make profits. It's not so sure that share price crash of 14% per year is completely deserved, but the market is doubtless disappointed. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. A company like this generally needs to produce profits before it can find favour with new investors.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Petra Diamonds in this interactive graph of future profit estimates.
A Different Perspective
While the broader market gained around 15% in the last year, Petra Diamonds shareholders lost 33%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 14% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Take risks, for example - Petra Diamonds has 3 warning signs we think you should be aware of.