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Pharos Energy plc (LON:PHAR) shareholders should be happy to see the share price up 11% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 81% lower after that period. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Pharos 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. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last half decade, Pharos Energy saw its revenue increase by 0.5% per year. That's far from impressive given all the money it is losing. It's not so sure that share price crash of 13% per year is completely deserved, but the market is doubtless disappointed. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. A company like this generally needs to produce profits before it can find favour with new investors.
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 it makes a lot of sense to check out what analysts think Pharos Energy will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Pharos Energy's total shareholder return (TSR) and its share price return. 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. Its history of dividend payouts mean that Pharos Energy's TSR, which was a 77% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
Pharos Energy's TSR for the year was broadly in line with the market average, at 28%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 12%, which was endured over half a decade. We're pretty skeptical of turnaround stories, but it's good to see the recent share price recovery. It's always interesting to track share price performance over the longer term. But to understand Pharos Energy better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Pharos Energy you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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