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Did You Miss NeoPhotonics's (NYSE:NPTN) Impressive 102% Share Price Gain?

Simply Wall St

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. One great example is NeoPhotonics Corporation (NYSE:NPTN) which saw its share price drive 102% higher over five years. Also pleasing for shareholders was the 29% gain in the last three months.

View our latest analysis for NeoPhotonics

NeoPhotonics isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 5 years NeoPhotonics saw its revenue grow at 0.04% per year. That's not a very high growth rate considering the bottom line. So we wouldn't have expected to see the share price to have lifted 15% for each year during that time, but that's what happened. While we wouldn't be overly concerned, it might be worth checking whether you think the fundamental business gains really justify the share price action. It may be that the market is pretty optimistic about NeoPhotonics.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NYSE:NPTN Income Statement, October 14th 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think NeoPhotonics will earn in the future (free profit forecasts).

A Different Perspective

While the broader market gained around 9.1% in the last year, NeoPhotonics shareholders lost 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.