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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Don't Nod Entertainment S.A. (EPA:ALDNE) have tasted that bitter downside in the last year, as the share price dropped 40%. That's well bellow the market return of 6.9%. Because Don't Nod Entertainment hasn't been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 27% in the last three months.
While Don't Nod Entertainment made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Don't Nod Entertainment grew its revenue by 26% over the last year. That's definitely a respectable growth rate. Meanwhile, the share price is down 40% over twelve months, which is disappointing given the progress made. You might even wonder if the share price was previously over-hyped. However, that's in the past now, and it's the future that matters most.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Don't Nod Entertainment has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Don't Nod Entertainment's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While Don't Nod Entertainment shareholders are down 40% for the year, the market itself is up 6.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 27% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Don't Nod Entertainment may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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 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.