It's easy to feel disappointed if you buy a stock that goes down. But sometimes broader market conditions have more of an impact on prices than the actual business performance. The Archaea Energy Inc. (NYSE:LFG) share price is down 14% in the last year. But that actually beats the market decline of 20%. Archaea Energy hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The share price has dropped 29% in three months. Of course, this share price action may well have been influenced by the 17% decline in the broader market, throughout the period.
After losing 13% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
Because Archaea Energy made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last twelve months, Archaea Energy increased its revenue by 1,734%. That's well above most other pre-profit companies. While the share price is down 14% in the last year, not too bad given the weak market. Given the strong revenue growth, it may simply be that the stock is suffering from market conditions. Given the strong growth in revenue, this could be an opportunity for long-term focussed growth investors, assuming the stock has the resources to reach profitability. Either way, we'd say the mismatch between the revenue growth and the share price justifies a closer look.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Archaea Energy
A Different Perspective
Given that the broader market dropped 20% over the year, the fact that Archaea Energy shareholders were down 14% isn't so bad. Things weren't so bad until the last three months, when the stock dropped 29%. It's always a worry to see a share price decline like that, but at the same time, it is an unavoidable part of investing. In times of uncertainty we usually try to focus on the long term fundamental business metrics. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Archaea Energy has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.
We will like Archaea Energy 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 US 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.