Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the ClearStar, Inc. (LON:CLSU) share price slid 32% over twelve months. That's disappointing when you consider the market returned -2.4%. On the other hand, the stock is actually up 27% over three years. And the share price decline continued over the last week, dropping some 10.0%. However, this move may have been influenced by the broader market, which fell 4.9% in that time.
Given that ClearStar didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
In the last year ClearStar saw its revenue grow by 13%. That's not a very high growth rate considering it doesn't make profits. Given this fairly low revenue growth (and lack of profits), it's not particularly surprising to see the stock down 32% in a year. It's important not to lose sight of the fact that profitless companies must grow. So remember, if you buy a profitless company then you risk being a profitless investor.
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 ClearStar's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
ClearStar shareholders are down 32% for the year, falling short of the market return. Meanwhile, the broader market slid about 2.4%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 8.3% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. If you would like to research ClearStar in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 GB exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.