In This Article:
It is a pleasure to report that the Karoon Energy Ltd (ASX:KAR) is up 35% in the last quarter. But that can't change the reality that over the longer term (five years), the returns have been really quite dismal. In that time the share price has delivered a rude shock to holders, who find themselves down 57% after a long stretch. So is the recent increase sufficient to restore confidence in the stock? Not yet. We'd err towards caution given the long term under-performance.
See our latest analysis for Karoon Energy
Karoon Energy 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. 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.
In the last five years Karoon Energy saw its revenue shrink by 9.1% per year. That's definitely a weaker result than most pre-profit companies report. It seems appropriate, then, that the share price slid about 9.4% annually during that time. We don't generally like to own companies that lose money and don't grow revenues. You might be better off spending your money on a leisure activity. This looks like a really risky stock to buy, at a glance.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Karoon Energy's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Karoon Energy hasn't been paying dividends, but its TSR of -53% exceeds its share price return of -57%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
While the broader market lost about 0.2% in the twelve months, Karoon Energy shareholders did even worse, losing 29%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8.8% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Karoon Energy better, we need to consider many other factors. Even so, be aware that Karoon Energy is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...