In a modest yet positive development, KMD Brands Limited (NZSE:KMD) has seen its stock price rise by 13% over the past three months. However, this uptick is not likely to mend the substantial declines experienced over the past five years, during which the shares have plummeted by an alarming 79%. Consequently, the recent rebound does little to inspire confidence, as the company’s long-term fundamental performance will be the true indicator of any sustainable recovery.
Given the significant downturn for shareholders, it is essential to examine the core fundamentals of KMD Brands over this extended period to determine if they align with the returns experienced. The company has been under scrutiny, especially since it reported a loss in the last year. As a result, investor attention may be shifting towards revenue generation and growth, at least for the time being. Typically, firms that do not turn a profit are expected to demonstrate consistent revenue growth, often at an accelerated rate. While some companies prioritize revenue expansion over immediate profitability, this strategy necessitates robust top-line growth to compensate for the absence of earnings.
Over the past five years, KMD Brands has experienced a revenue growth rate of just 3.7% annually, which is rather modest given its lack of profitability. Although the 12% annual decline in share price may not be entirely justified, it is clear that market sentiment remains cautious. Investors should proceed with care, while also considering whether the steep drop in share price may have been overly harsh. It would be prudent to focus future research efforts on the prospects for the company achieving profitability in the near term, especially in light of its subdued revenue growth.
Recent insider buying activity within the past quarter is a noteworthy development and could signal positive sentiment among insiders. Nevertheless, the trends in revenue and earnings are more critical indicators of the company’s overall health. Therefore, stakeholders are encouraged to review the available free report that outlines consensus forecasts. Additionally, it’s important to distinguish between KMD Brands’ total shareholder return (TSR) and its share price return. TSR takes into account the value of cash dividends (assuming reinvestment of received dividends) and any capital raisings or spin-offs, which have proven beneficial for KMD Brands investors. This cash distribution helps explain why the total shareholder loss of 75% over the last five years is not as severe as the decline in share price alone suggests.
The past year has been challenging for KMD Brands investors, who faced a total loss of 33%, contrasting sharply with a market gain of approximately 8%. While it’s common for even well-performing stocks to experience declines, there is an expectation for improvements in key business metrics before renewed interest becomes warranted. Unfortunately, last year’s results conclude a troubling trend, with shareholders enduring an average annual loss of 12% over the past five years. While the adage attributed to Baron Rothschild advises investors to “buy when there is blood on the streets,” it is crucial that potential buyers ensure they are investing in a high-quality enterprise.
Examining share price trends over the long term can provide valuable insights into business performance. However, to gain a comprehensive understanding, additional factors must be considered. For instance, we have identified one warning sign regarding KMD Brands that prospective investors should take into account before proceeding. Furthermore, KMD Brands is not alone in attracting insider purchases; for those interested in lesser-known companies, a free list of growing firms with recent insider activity may prove to be a useful resource.
It is important to note that the market returns referenced in this article reflect the market-weighted average returns from stocks currently trading on New Zealand exchanges. Should you have any feedback regarding this article or concerns about its content, please feel free to reach out directly. Alternatively, you can contact the editorial team via email. This commentary is intended for informational purposes only and is based on historical data and analyst projections. It does not serve as financial advice or a recommendation to buy or sell any stock, nor does it consider your individual financial circumstances. Our goal is to provide long-term analysis driven by fundamental data, and this assessment may not account for recent price-sensitive company announcements or qualitative factors. Simply Wall St does not hold any positions in the stocks mentioned.
