Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term ChromaDex Corporation (NASDAQ:CDXC) shareholders have enjoyed a 69% share price rise over the last half decade, well in excess of the market return of around 52% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 30%.
ChromaDex 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
For the last half decade, ChromaDex can boast revenue growth at a rate of 17% per year. That's well above most pre-profit companies. While the compound gain of 11% per year is good, it's not unreasonable given the strong revenue growth. If you think there could be more growth to come, now might be the time to take a close look at ChromaDex. Of course, you'll have to research the business more fully to figure out if this is an attractive opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
ChromaDex's TSR for the year was broadly in line with the market average, at 30%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 11%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
ChromaDex is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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