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. For example, the NetScout Systems, Inc. (NASDAQ:NTCT) share price return of 30% over three years lags the market return in the same period. Zooming in, the stock is up a respectable 6.3% in the last year.
NetScout Systems isn't a profitable company, so 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. 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.
NetScout Systems actually saw its revenue drop by 1.4% per year over three years. The falling revenue is arguably somewhat reflected in the lacklustre return of 9.1% 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 chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
This free interactive report on NetScout Systems's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
NetScout Systems shareholders gained a total return of 6.3% during the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 3.9% per year, over five years. So this might be a sign the business has turned its fortunes around. Before spending more time on NetScout Systems it might be wise to click here to see if insiders have been buying or selling shares.
But note: NetScout Systems 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 US exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.