Imagine Owning Australian Agricultural Projects (ASX:AAP) And Trying To Stomach The 80% Share Price Drop

Simply Wall St

Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Australian Agricultural Projects Ltd (ASX:AAP) investors who have held the stock for three years as it declined a whopping 80%. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 56%, so we doubt many shareholders are delighted.

See our latest analysis for Australian Agricultural Projects

Australian Agricultural Projects isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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 Australian Agricultural Projects saw its revenue shrink by 14% per year. That is not a good result. Having said that the 42% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

ASX:AAP Income Statement March 30th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized 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 interactive report on Australian Agricultural Projects's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 19% in the twelve months, Australian Agricultural Projects shareholders did even worse, losing 56%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4.4% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Australian Agricultural Projects better, we need to consider many other factors. Even so, be aware that Australian Agricultural Projects is showing 6 warning signs in our investment analysis , and 4 of those shouldn't be ignored...

We will like Australian Agricultural Projects 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 AU 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.