It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For instance the GoDaddy Inc. (NYSE:GDDY) share price is 159% higher than it was three years ago. Most would be happy with that. It's also good to see the share price up 24% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 10% in 90 days).
We don't think that GoDaddy's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
GoDaddy's revenue trended up 18% each year over three years. That's a very respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 37% per year over three years. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on GoDaddy
A Different Perspective
Pleasingly, GoDaddy's total shareholder return last year was 27%. The TSR has been even better over three years, coming in at 37% per year. If you would like to research GoDaddy in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like GoDaddy better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.