Investors can buy low cost index fund if they want to receive the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Marchex, Inc. (NASDAQ:MCHX) share price. It's up 38% over three years, but that is below the market return. Some buyers are laughing, though, with an increase of 24% in the last year.
Marchex isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last 3 years Marchex saw its revenue shrink by 13% per year. The falling revenue is arguably somewhat reflected in the lacklustre return of 11% per year over three years, which falls short of the market return. Profit focussed investors would generally avoid a company with falling revenue and zero profits, since it's hard to imagine when profit might come.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Marchex's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Marchex's total shareholder return (TSR) and its share price change, which we've covered above. 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 Marchex's TSR of 61% over the last 3 years is better than the share price return.
A Different Perspective
We're pleased to report that Marchex shareholders have received a total shareholder return of 24% over one year. That gain is better than the annual TSR over five years, which is 3.8%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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