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Imagine Owning Dragontail Systems (ASX:DTS) And Wondering If The 33% Share Price Slide Is Justified

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Dragontail Systems Limited (ASX:DTS) share price slid 33% over twelve months. That's disappointing when you consider the market returned 17%. Dragontail Systems may have better days ahead, of course; we've only looked at a one year period. And the share price decline continued over the last week, dropping some 5.9%.

See our latest analysis for Dragontail Systems

Given that Dragontail Systems 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last year Dragontail Systems saw its revenue grow by 218%. That's a strong result which is better than most other loss making companies. The share price drop of 33% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

ASX:DTS Income Statement, October 16th 2019

It's probably worth noting that the CEO is paid less than the median at similar sized 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. Dive deeper into the earnings by checking this interactive graph of Dragontail Systems's earnings, revenue and cash flow.

A Different Perspective

Given that the market gained 17% in the last year, Dragontail Systems shareholders might be miffed that they lost 33%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 3.0%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

We will like Dragontail Systems 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 AU 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 editorial-team@simplywallst.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.