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Unless you borrow money to invest, the potential losses are limited. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example S&W Seed Company (NASDAQ:SANW). Its share price is already up an impressive 101% in the last twelve months. Also pleasing for shareholders was the 15% gain in the last three months. But this could be related to the strong market, which is up 6.4% in the last three months. However, the stock hasn't done so well in the longer term, with the stock only up 9.3% in three years.
S&W Seed isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
S&W Seed actually shrunk its revenue over the last year, with a reduction of 6.6%. So we would not have expected the share price to rise 101%. This is a good example of how buyers can push up prices even before the fundamental metrics show much growth. It's quite likely the revenue fall was already priced in, anyway.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at S&W Seed's financial health with this free report on its balance sheet.
A Different Perspective
It's good to see that S&W Seed has rewarded shareholders with a total shareholder return of 101% in the last twelve months. That certainly beats the loss of about 3% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with S&W Seed (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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