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Volatility 101: Should Transense Technologies (LON:TRT) Shares Have Dropped 31%?

Simply Wall St
·3-min read

Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Transense Technologies plc (LON:TRT) shareholders, since the share price is down 31% in the last three years, falling well short of the market return of around 18%. The falls have accelerated recently, with the share price down 13% in the last three months.

View our latest analysis for Transense Technologies

Transense Technologies 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years Transense Technologies saw its revenue shrink by 24% per year. That means its revenue trend is very weak compared to other loss making companies. On the face of it we'd posit the share price fall of 12% compound, over three years is well justified by the fundamental deterioration. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

AIM:TRT Income Statement, February 10th 2020
AIM:TRT Income Statement, February 10th 2020

If you are thinking of buying or selling Transense Technologies stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's nice to see that Transense Technologies shareholders have received a total shareholder return of 28% over the last year. Notably the five-year annualised TSR loss of 6.6% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Transense Technologies (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Of course Transense Technologies 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.

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.