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There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if when you choose to buy stocks, some of them will be below average performers. Unfortunately for shareholders, while the Sonos, Inc. (NASDAQ:SONO) share price is up 12% in the last year, that falls short of the market return. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
Sonos 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Sonos grew its revenue by 3.4% last year. That's not great considering the company is losing money. It's probably fair to say that the modest growth is reflected in the modest share price gain of 12%. A closer look at the bottom line might reveal an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Sonos' financial health with this free report on its balance sheet.
A Different Perspective
Sonos shareholders have gained 12% for the year. Unfortunately this falls short of the market return of around 20%. Shareholders are doubtless excited that the stock price has been doing even better lately, with a gain of 16% in just ninety days. It's worth taking note when returns accelerate, as it can indicate positive change in the underlying business, and winners often keep winning. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Sonos you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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