Investors in RADCOM (NASDAQ:RDCM) have made a favorable return of 50% over the past three years
You can receive the average market return by buying a low-cost index fund. But you can make better returns by buying undervalued shares. For example, the RADCOM Ltd. (NASDAQ:RDCM) share price is up 50% in the last three years, slightly above the market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 19% in the last year.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for RADCOM
Given that RADCOM didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last 3 years RADCOM saw its revenue grow at 10.0% per year. That's pretty nice growth. While the share price has done well, compounding at 15% yearly, over three years, that move doesn't seem over the top. Of course, valuation is quite sensitive to the rate of growth. Of course, it's always worth considering funding risks when a company isn't profitable.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on RADCOM's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We regret to report that RADCOM shareholders are down 19% for the year. Unfortunately, that's worse than the broader market decline of 9.2%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 RADCOM (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.
We will like RADCOM 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 American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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