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This week we saw the Puxin Limited (NYSE:NEW) share price climb by 17%. But that isn't much consolation to those who have suffered through the declines of the last year. Like an arid lake in a warming world, shareholder value has evaporated, with the share price down 58% in that time. So the bounce should be viewed in that context. Arguably, the fall was overdone.
Because Puxin made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. 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 twelve months, Puxin increased its revenue by 39%. That's definitely a respectable growth rate. Meanwhile, the share price tanked 58%, suggesting the market had much higher expectations. It is of course possible that the business will still deliver strong growth, it will just take longer than expected to do it. To our minds it isn't enough to just look at revenue, anyway. Always consider when profits will flow.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Puxin's financial health with this free report on its balance sheet.
A Different Perspective
We doubt Puxin shareholders are happy with the loss of 58% over twelve months. That falls short of the market, which lost 4.0%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. It's worth noting that the last three months did the real damage, with a 59% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Puxin , and understanding them should be part of your investment process.
Of course Puxin may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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