One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Cree, Inc. (NASDAQ:CREE) share price is up 80% in the last three years, clearly besting than the market return of around 38% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 26% in the last year.
Because Cree is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Cree actually saw its revenue drop by 2.8% per year over three years. Despite the lack of revenue growth, the stock has returned 22%, compound, over three years. Unless the company is going to make profits soon, we would be pretty cautious about it.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Cree is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Cree will earn in the future (free analyst consensus estimates)
A Different Perspective
We’re pleased to report that Cree shareholders have received a total shareholder return of 26% over one year. Notably the five-year annualised TSR loss of 2.3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Shareholders might want to examine this detailed historical graph of past 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.