As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Hotcopper Holdings Limited (ASX:HOT) shareholders have had that experience, with the share price dropping 29% in three years, versus a market return of about 41%. And the ride hasn't got any smoother in recent times over the last year, with the price 28% lower in that time.
Hotcopper Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over three years, Hotcopper Holdings grew revenue at 15% per year. That's a pretty good rate of top-line growth. Shareholders have seen the share price fall at 11% per year, for three years. So the market has definitely lost some love for the stock. With revenue growing at a solid clip, now might be the time to focus on the possibility that it will have a brighter future.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Hotcopper Holdings's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Hotcopper Holdings's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Hotcopper Holdings's TSR, which was a 25% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
The last twelve months weren't great for Hotcopper Holdings shares, which cost holders 27%, while the market was up about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 9.1% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 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.