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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. Investors in Vapotherm, Inc. (NYSE:VAPO) have tasted that bitter downside in the last year, as the share price dropped 14%. That contrasts poorly with the market return of 32%. Because Vapotherm hasn't been listed for many years, the market is still learning about how the business performs. The last week also saw the share price slip down another 15%.
Since Vapotherm has shed US$104m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Because Vapotherm made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year Vapotherm saw its revenue grow by 59%. That's a strong result which is better than most other loss making companies. The share price drop of 14% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Vapotherm stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Given that the market gained 32% in the last year, Vapotherm shareholders might be miffed that they lost 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 0.6% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Vapotherm better, we need to consider many other factors. For instance, we've identified 1 warning sign for Vapotherm that you should be aware of.
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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