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Is Infinera's (NASDAQ:INFN) 102% Share Price Increase Well Justified?

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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Infinera Corporation (NASDAQ:INFN) share price has soared 102% in the last year. Most would be very happy with that, especially in just one year! And in the last week the share price has popped 7.8%. Having said that, the longer term returns aren't so impressive, with stock gaining just 3.9% in three years.

Check out our latest analysis for Infinera

Because Infinera made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

In the last year Infinera saw its revenue grow by 1.5%. That's not a very high growth rate considering it doesn't make profits. So we wouldn't have expected the share price to rise by 102%. The business will need a lot more growth to justify that increase. We're not so sure that revenue growth is driving the market optimism about the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
earnings-and-revenue-growth

Infinera is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Infinera in this interactive graph of future profit estimates.

A Different Perspective

It's good to see that Infinera has rewarded shareholders with a total shareholder return of 102% in the last twelve months. Notably the five-year annualised TSR loss of 5% per year compares very unfavourably with the recent share price performance. 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. Case in point: We've spotted 3 warning signs for Infinera you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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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