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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Veeco Instruments Inc. (NASDAQ:VECO) share price is 121% higher than it was three years ago. That sort of return is as solid as granite. On the other hand, the stock price has retraced 4.9% in the last week. But this could be related to the soft market, with stocks selling off around 3.6% in the last week.
While the stock has fallen 4.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
Given that Veeco Instruments only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last 3 years Veeco Instruments saw its revenue shrink by 6.1% per year. So the share price gain of 30% per year is quite surprising. It's a good reminder that expectations about the future, not the past history, always impact share prices.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Veeco Instruments has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It's nice to see that Veeco Instruments shareholders have received a total shareholder return of 89% over the last year. That's better than the annualised return of 0.2% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 2 warning signs with Veeco Instruments (at least 1 which is potentially serious) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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. 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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