One simple way to benefit from a rising market is to buy an index fund. By comparison, an individual stock is unlikely to match market returns - and could well fall short. For example, the 5G Networks Limited (ASX:5GN) share price fell 14% in the last year, slightly below the market decline of around 11%. We wouldn't rush to judgement on 5G Networks because we don't have a long term history to look at. It's up 2.8% in the last seven days.
5G Networks 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
5G Networks grew its revenue by 90% over the last year. That's well above most other pre-profit companies. The share price drop of 14% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling 5G Networks stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We doubt 5G Networks shareholders are happy with the loss of 13% over twelve months (even including dividends) . That falls short of the market, which lost 11%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 2.2%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand 5G Networks better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for 5G Networks 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 AU exchanges.
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.
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. Thank you for reading.