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Does EROAD's (NZSE:ERD) Share Price Gain of 36% Match Its Business Performance?

Simply Wall St

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the EROAD Limited (NZSE:ERD) share price is up 36% in the last three years, clearly besting than the market return of around 26% (not including dividends).

See our latest analysis for EROAD

Because EROAD is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last three years EROAD has grown its revenue at 31% annually. That's much better than most loss-making companies. While the compound gain of 11% per year over three years is pretty good, you might argue it doesn't fully reflect the strong revenue growth. If that's the case, now might be the time to take a close look at EROAD. A window of opportunity may reveal itself with time, if the business can trend to profitability.

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

NZSE:ERD Income Statement, September 17th 2019

Take a more thorough look at EROAD's financial health with this free report on its balance sheet.

A Different Perspective

Investors in EROAD had a tough year, with a total loss of 15%, against a market gain of about 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4.3% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

Of course EROAD may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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