If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the HEXO Corp. (TSE:HEXO) share price is up 81% in the last year, clearly besting than the market return of around -1.6% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
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Because HEXO 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over the last twelve months, HEXO's revenue grew by 403%. That's a head and shoulders above most loss-making companies. While the share price gain of 81% over twelve months is pretty tasty, 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 HEXO. Human beings have trouble conceptualizing (and valuing) exponential growth. Is that what we're seeing here?
Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think HEXO will earn in the future (free profit forecasts).
A Different Perspective
HEXO shareholders should be happy with the total gain of 81% over the last twelve months. A substantial portion of that gain has come in the last three months, with the stock up 23% in that time. This suggests the company is continuing to win over new investors. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
HEXO 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 CA 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 email@example.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.