Some Avalara, Inc. (NYSE:AVLR) shareholders are probably rather concerned to see the share price fall 40% over the last three months. In contrast, the return over three years has been impressive. The share price marched upwards over that time, and is now 165% higher than it was. After a run like that some may not be surprised to see prices moderate. Only time will tell if there is still too much optimism currently reflected in the share price.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Because Avalara 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. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Avalara's revenue trended up 30% each year over three years. That's well above most pre-profit companies. Meanwhile, the share price performance has been pretty solid at 38% compound over three years. This suggests the market has recognized the progress the business has made, at least to a significant degree. That's not to say we think the share price is too high. In fact, it might be worth keeping an eye on this one.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Avalara is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Avalara stock, you should check out this free report showing analyst consensus estimates for future profits.
What about the Total Shareholder Return (TSR)?
We've already covered Avalara's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Avalara's TSR, at 167% is higher than its share price return of 165%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Avalara shareholders are down 32% for the year, but the broader market is up 9.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 39% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Avalara (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.