Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by GTY Technology Holdings Inc. (NASDAQ:GTYH) shareholders over the last year, as the share price declined 45%. That contrasts poorly with the market return of 9.1%. We wouldn't rush to judgement on GTY Technology Holdings because we don't have a long term history to look at. Furthermore, it's down 15% in about a quarter. That's not much fun for holders.
GTY Technology Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In just one year GTY Technology Holdings saw its revenue fall by 79%. If you think that's a particularly bad result, you're statistically on the money No surprise, then, that the share price fell 45% over the year. We would want to see improvements in the core business, and diminishing losses, before getting too excited about this one.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on GTY Technology Holdings's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Given that the market gained 9.1% in the last year, GTY Technology Holdings shareholders might be miffed that they lost 45%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 15% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.