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Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Dynatrace, Inc. (NYSE:DT) share price is up 50% in the last year, clearly besting the market return of around 38% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Dynatrace hasn't been listed for long, so it's still not clear if it is a long term winner.
Given that Dynatrace only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Dynatrace grew its revenue by 31% last year. We respect that sort of growth, no doubt. While the share price performed well, gaining 50% over twelve months, you could argue the revenue growth warranted it. If the company can maintain the revenue growth, the share price could go higher still. But it's crucial to check profitability and cash flow before forming a view on the future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Dynatrace is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Dynatrace will earn in the future (free analyst consensus estimates)
A Different Perspective
Dynatrace boasts a total shareholder return of 50% for the last year. A substantial portion of that gain has come in the last three months, with the stock up 22% in that time. This suggests the company is continuing to win over new investors. 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 2 warning signs with Dynatrace , and understanding them should be part of your investment process.
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.
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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