Imagine Owning Total Brain (ASX:TTB) And Trying To Stomach The 85% Share Price Drop

Simply Wall St

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Imagine if you held Total Brain Limited (ASX:TTB) for half a decade as the share price tanked 85%. Furthermore, it's down 44% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 25% decline in the broader market, throughout the period.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Total Brain

Because Total Brain made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over five years, Total Brain grew its revenue at 1.8% per year. That's far from impressive given all the money it is losing. Nonetheless, it's fair to say the rapidly declining share price (down 32%, compound, over five years) suggests the market is very disappointed with this level of growth. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

ASX:TTB Income Statement April 10th 2020

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Total Brain stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

It's nice to see that Total Brain shareholders have received a total shareholder return of 34% over the last year. There's no doubt those recent returns are much better than the TSR loss of 32% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Total Brain , and understanding them should be part of your investment process.

Total Brain is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.