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If You Had Bought Establishment Labs Holdings (NASDAQ:ESTA) Stock A Year Ago, You'd Be Sitting On A 17% Loss, Today

Simply Wall St

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. For example, the Establishment Labs Holdings Inc. (NASDAQ:ESTA) share price is down 17% in the last year. That's disappointing when you consider the market returned 14%. Establishment Labs Holdings hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. It's down 25% in about a quarter.

See our latest analysis for Establishment Labs Holdings

Because Establishment Labs Holdings 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. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Establishment Labs Holdings grew its revenue by 58% over the last year. That's well above most other pre-profit companies. The share price drop of 17% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NasdaqCM:ESTA Income Statement, October 24th 2019
NasdaqCM:ESTA Income Statement, October 24th 2019

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Establishment Labs Holdings in this interactive graph of future profit estimates.

A Different Perspective

While Establishment Labs Holdings shareholders are down 17% for the year, the market itself is up 14%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Notably, the loss over the last year isn't as bad as the 25% drop in the last three months. This probably signals that the business has recently disappointed shareholders - it will take time to win them back. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Establishment Labs Holdings by clicking this link.

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.