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Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Anyone who held Transat A.T. Inc. (TSE:TRZ) for five years would be nursing their metaphorical wounds since the share price dropped 89% in that time. And it's not just long term holders hurting, because the stock is down 49% in the last year. On top of that, the share price is down 6.2% in the last week. However, this move may have been influenced by the broader market, which fell 2.6% in that time. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
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 Transat A.T
Given that Transat A.T 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
In the last half decade, Transat A.T saw its revenue increase by 17% per year. That's well above most other pre-profit companies. So it's not at all clear to us why the share price sunk 14% throughout that time. It could be that the stock was over-hyped before. While there might be an opportunity here, you'd want to take a close look at the balance sheet strength.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Transat A.T shareholders are down 49% for the year, but the market itself is up 19%. 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 14% 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. Case in point: We've spotted 2 warning signs for Transat A.T you should be aware of, and 1 of them is significant.