Investing in stocks inevitably means buying into some companies that perform poorly. But the last three years have been particularly tough on longer term Spirit Airlines, Inc. (NYSE:SAVE) shareholders. Unfortunately, they have held through a 60% decline in the share price in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 41% lower in that time.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Spirit Airlines
Given that Spirit Airlines 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last three years Spirit Airlines saw its revenue shrink by 16% per year. That means its revenue trend is very weak compared to other loss making companies. With no profits and falling revenue it is no surprise that investors have been dumping the stock, pushing the price down by 17% per year over that time. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. After losing money on a declining business with falling stock price, we always consider whether eager bagholders are still offering us a reasonable exit price.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Spirit Airlines in this interactive graph of future profit estimates.
A Different Perspective
Spirit Airlines shareholders are down 41% for the year, but the market itself is up 6.4%. 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 10% 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. Even so, be aware that Spirit Airlines is showing 4 warning signs in our investment analysis , and 1 of those is significant...