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It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Limeade, Inc. (ASX:LME) share price is down 18% in the last year. That's well below the market return of 4.6%. Limeade may have better days ahead, of course; we've only looked at a one year period. Even worse, it's down 14% in about a month, which isn't fun at all.
Limeade wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 year Limeade saw its revenue grow by 21%. That's definitely a respectable growth rate. Unfortunately that wasn't good enough to stop the share price dropping 18%. You might even wonder if the share price was previously over-hyped. However, that's in the past now, and it's the future that matters most.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Take a more thorough look at Limeade's financial health with this free report on its balance sheet.
A Different Perspective
Given that the market gained 4.6% in the last year, Limeade shareholders might be miffed that they lost 18%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 0.7%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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. Take risks, for example - Limeade has 2 warning signs we think you should be aware of.
But note: Limeade may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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. 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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