Shareholders in Brooge Energy (NASDAQ:BROG) have lost 22%, as stock drops 9.1% this past week

It’s easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Brooge Energy Limited (NASDAQ:BROG) shareholders over the last year, as the share price declined 22%. That contrasts poorly with the market return of 14%. Brooge Energy may have better days ahead, of course; we’ve only looked at a one year period. The falls have accelerated recently, with the share price down 10% in the last three months.

Since Brooge Energy has shed US$90m from its value in the past 7 days, let’s see if the longer term decline has been driven by the business’ economics.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year Brooge Energy grew its earnings per share, moving from a loss to a profit.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. But we may find different metrics more enlightening.

In contrast, the 6.0% drop in revenue is a real concern. If the market sees the weak revenue as jeopardising EPS, that could explain the lower share price.

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

NasdaqCM:BROG Earnings and Revenue Growth January 14th 2022

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Brooge Energy in this interactive graph of future profit estimates.

A Different Perspective

While Brooge Energy shareholders are down 22% for the year, the market itself is up 14%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 10% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. 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. For instance, we’ve identified 2 warning signs for Brooge Energy that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.

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