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Active investing isn't easy, but for those that do it, the aim is to find the best companies to buy, and to profit handsomely. When an investor finds a multi-bagger (a stock that goes up over 200%), it makes a big difference to their portfolio. In the case of FreightCar America, Inc. (NASDAQ:RAIL), the share price is up an incredible 375% in the last year alone. It's also good to see the share price up 87% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. In contrast, the longer term returns are negative, since the share price is 64% lower than it was three years ago.
FreightCar America 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.
FreightCar America actually shrunk its revenue over the last year, with a reduction of 53%. This is in stark contrast to the splendorous stock price, which has rocketed 375% since this time a year ago. It's pretty clear the market isn't basing its valuation on fundamental metrics like revenue. To us, a gain like this looks like speculation, but there might be historical trends to back it up.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on FreightCar America
A Different Perspective
It's good to see that FreightCar America has rewarded shareholders with a total shareholder return of 375% in the last twelve months. That certainly beats the loss of about 11% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. 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. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for FreightCar America (of which 1 is potentially serious!) you should know about.
FreightCar America is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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