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By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, Echo Global Logistics, Inc. (NASDAQ:ECHO) shareholders have seen the share price rise 49% over three years, well in excess of the market return (30%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 13% in the last year.
We don't think that Echo Global Logistics' modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Echo Global Logistics' revenue trended up 5.9% each year over three years. Considering the company is losing money, we think that rate of revenue growth is uninspiring. The modest growth is probably broadly reflected in the share price, which is up 14%, per year over 3 years. Ultimately, the important thing is whether the company is trending to profitability. 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 image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Echo Global Logistics is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Echo Global Logistics stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Echo Global Logistics shareholders gained a total return of 13% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 6.1% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Echo Global Logistics better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Echo Global Logistics , and understanding them should be part of your investment process.
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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