The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For example, the Audinate Group Limited (ASX:AD8) share price has soared 209% in the last three years. Most would be happy with that. In more good news, the share price has risen 7.8% in thirty days.
Audinate Group 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. 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 3 years Audinate Group saw its revenue grow at 25% per year. That's much better than most loss-making companies. Meanwhile, the share price performance has been pretty solid at 46% compound over three years. But it does seem like the market is paying attention to strong revenue growth. Nonetheless, we'd say Audinate Group is still worth investigating - successful businesses can often keep growing for long periods.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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 Audinate Group in this interactive graph of future profit estimates.
A Different Perspective
Audinate Group shareholders are down 16% for the year, falling short of the market return. Meanwhile, the broader market slid about 2.7%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 46% per year over three years. 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 1 warning sign with Audinate Group , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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. 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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