Passive investing in index funds can generate returns that roughly match the overall market. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Cornerstone OnDemand, Inc. (NASDAQ:CSOD) share price is up 56% in the last five years, slightly above the market return. We're also happy to report the stock is up a healthy 21% in the last year.
Given that Cornerstone OnDemand didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last 5 years Cornerstone OnDemand saw its revenue grow at 16% per year. That's well above most pre-profit companies. While the compound gain of 9.3% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd expect the share price to follow, in time. 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).
Cornerstone OnDemand is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
Cornerstone OnDemand shareholders are up 21% for the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 9.3% per year over five year. It is possible that returns will improve along with the business fundamentals. If you would like to research Cornerstone OnDemand in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 email@example.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.
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