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By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, FireEye, Inc. (NASDAQ:FEYE) shareholders have seen the share price rise 58% over three years, well in excess of the market return (39%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 34%.
Given that FireEye didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over the last three years FireEye has grown its revenue at 6.5% annually. Considering the company is losing money, we think that rate of revenue growth is uninspiring. In that time the share price is up 16% per year, which is not unreasonable given the revenue gorwth. The real question is when the business will generate profits, and how quickly they will grow. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
FireEye is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling FireEye stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
It's good to see that FireEye has rewarded shareholders with a total shareholder return of 34% in the last twelve months. That gain is better than the annual TSR over five years, which is 1.5%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that FireEye is showing 3 warning signs in our investment analysis , you should know about...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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