For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Benefitfocus, Inc. (NASDAQ:BNFT) shareholders, since the share price is down 40% in the last three years, falling well short of the market return of around 46%. The more recent news is of little comfort, with the share price down 28% in a year. Furthermore, it's down 12% in about a quarter. That's not much fun for holders.
Because Benefitfocus is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
In the last three years, Benefitfocus saw its revenue grow by 7.2% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. Indeed, the stock dropped 15% over the last three years. Shareholders will probably be hoping growth picks up soon. But the real upside for shareholders will be if the company can start generating profits.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Benefitfocus is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Benefitfocus in this interactive graph of future profit estimates.
A Different Perspective
Investors in Benefitfocus had a tough year, with a total loss of 28%, against a market gain of about 7.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2.2% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on Benefitfocus it might be wise to click here to see if insiders have been buying or selling shares.
We will like Benefitfocus better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.