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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Qutoutiao Inc. (NASDAQ:QTT) shareholders over the last year, as the share price declined 31%. That's well below the market return of 37%. Qutoutiao may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 18% in the last three months.
Qutoutiao 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Qutoutiao's revenue didn't grow at all in the last year. In fact, it fell 12%. That looks pretty grim, at a glance. The stock price has languished lately, falling 31% in a year. What would you expect when revenue is falling, and it doesn't make a profit? We think most holders must believe revenue growth will improve, or else costs will decline.
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 Qutoutiao's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While Qutoutiao shareholders are down 31% for the year, the market itself is up 37%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 18% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Qutoutiao better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Qutoutiao (at least 1 which is concerning) , and understanding them should be part of your investment process.
Of course Qutoutiao 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.
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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