Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term Bavarian Nordic A/S (CPH:BAVA) shareholders have enjoyed a 58% share price rise over the last half decade, well in excess of the market return of around 37% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 2.1% in the last year.
Bavarian Nordic 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. 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 half decade Bavarian Nordic's revenue has actually been trending down at about 8.6% per year. Even though revenue hasn't increased, the stock actually gained 9.5%, per year, during the same period. To us that suggests that there probably isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Bavarian Nordic's financial health with this free report on its balance sheet.
A Different Perspective
Bavarian Nordic shareholders gained a total return of 2.1% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 9.5% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Bavarian Nordic may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DK 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 firstname.lastname@example.org. 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.