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One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, ShaMaran Petroleum Corp. (CVE:SNM) shareholders have seen the share price rise 30% over three years, well in excess of the market return (16%, not including dividends).
Since the stock has added CA$28m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for ShaMaran Petroleum
ShaMaran Petroleum wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last 3 years ShaMaran Petroleum saw its revenue grow at 23% per year. That's much better than most loss-making companies. While the compound gain of 9% per year over three years is pretty good, you might argue it doesn't fully reflect the strong revenue growth. So now might be the perfect time to put ShaMaran Petroleum on your radar. If the company is trending towards profitability then it could be very interesting.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling ShaMaran Petroleum stock, you should check out this FREE detailed report on its balance sheet.
What About The Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between ShaMaran Petroleum's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. ShaMaran Petroleum hasn't been paying dividends, but its TSR of 40% exceeds its share price return of 30%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
ShaMaran Petroleum shareholders are down 19% for the year, but the market itself is up 14%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. We realise that Baron Rothschild 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 business. 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. To that end, you should be aware of the 1 warning sign we've spotted with ShaMaran Petroleum .