When you buy shares in a company, there is always a risk that the price drops to zero. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! For example, the Legend Power Systems Inc. (CVE:LPS) share price has soared 241% in the last year. Most would be very happy with that, especially in just one year! It's also up 91% in about a month. Zooming out, the stock is actually down 28% in the last three years.
Legend Power Systems 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.
Legend Power Systems actually shrunk its revenue over the last year, with a reduction of 31%. We're a little surprised to see the share price pop 241% in the last year. This is a good example of how buyers can push up prices even before the fundamental metrics show much growth. It's quite likely the revenue fall was already priced in, anyway.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Legend Power Systems' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that Legend Power Systems has rewarded shareholders with a total shareholder return of 241% in the last twelve months. That's better than the annualised return of 25% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Legend Power Systems better, we need to consider many other factors. Even so, be aware that Legend Power Systems is showing 5 warning signs in our investment analysis , and 2 of those are potentially serious...
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 CA 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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