When you buy shares in a company, there is always a risk that the price drops to zero. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Ballantyne Strong, Inc (NYSEMKT:BTN). Its share price is already up an impressive 110% in the last twelve months. It's also good to see the share price up 19% over the last quarter. But this could be related to the strong market, which is up 9.3% in the last three months. Unfortunately the longer term returns are not so good, with the stock falling 54% in the last three years.
Ballantyne Strong wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year Ballantyne Strong saw its revenue grow by 2.3%. That's not a very high growth rate considering it doesn't make profits. So we wouldn't have expected the share price to rise by 110%. We're happy that investors have made money, though we wonder if the increase will be sustained. It's quite likely that the market is considering other factors, not just revenue growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It's nice to see that Ballantyne Strong shareholders have received a total shareholder return of 110% over the last year. Notably the five-year annualised TSR loss of 3.5% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. To that end, you should learn about the 3 warning signs we've spotted with Ballantyne Strong (including 1 which is can't be ignored) .
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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