The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Cairn Energy PLC (LON:CNE) have tasted that bitter downside in the last year, as the share price dropped 21%. That's well bellow the market return of 4.7%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 14% in three years.
Because Cairn Energy is loss-making, 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Cairn Energy grew its revenue by 143% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 21% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Cairn Energy is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Cairn Energy stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While the broader market gained around 4.7% in the last year, Cairn Energy shareholders lost 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 3.0% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Cairn Energy it might be wise to click here to see if insiders have been buying or selling shares.
Of course Cairn Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.