Solteq Oyj (HEL:SOLTEQ) shareholders should be happy to see the share price up 11% in the last quarter. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 11% in the last three years, falling well short of the market return.
We don’t think that Solteq Oyj’s modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Many high growth companies focus on growing revenue before profits, but if revenue is the focus, it really needs to grow. The main reason for this is that fast revenue growth can be readily extrapolated into a profitable future, but stagnant revenue cannot.
In the last three years, Solteq Oyj saw its revenue grow by 0.5% per year, compound. Given it’s losing money in pursuit of growth, we are not really impressed with that. Indeed, the stock dropped 3.8% over the last three years. Shareholders will probably be hoping growth picks up soon. But the real upside for shareholders will be if the company can start generating profits.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
It is of course excellent to see how Solteq Oyj has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Solteq Oyj’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) and any discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Solteq Oyj’s TSR, which was a 8.4% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
Investors in Solteq Oyj had a tough year, with a total loss of 3.4%, against a market gain of about 5.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 2.3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Solteq Oyj cheap compared to other companies? These 3 valuation measures might help you decide.
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 FI exchanges.
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