Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. To wit, the ProAssurance Corporation (NYSE:PRA) share price managed to fall 62% over five long years. We certainly feel for shareholders who bought near the top. And it's not just long term holders hurting, because the stock is down 28% in the last year.
While the stock has risen 8.3% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
ProAssurance isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over five years, ProAssurance grew its revenue at 5.6% per year. That's not a very high growth rate considering it doesn't make profits. It's likely this weak growth has contributed to an annualised return of 10% for the last five years. We'd want to see proof that future revenue growth is likely to be significantly stronger before getting too interested in ProAssurance. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term).
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About The Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between ProAssurance's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. ProAssurance's TSR of was a loss of 59% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 29% in the last year, ProAssurance shareholders lost 28%. 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. You could get a better understanding of ProAssurance's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like ProAssurance better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.