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Volatility 101: Should Zuora (NYSE:ZUO) Shares Have Dropped 40%?

Simply Wall St

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Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Zuora, Inc. (NYSE:ZUO) have tasted that bitter downside in the last year, as the share price dropped 40%. That's disappointing when you consider the market returned 5.7%. Zuora may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 19% in the last three months.

View our latest analysis for Zuora

Given that Zuora 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last twelve months, Zuora increased its revenue by 31%. That's definitely a respectable growth rate. Meanwhile, the share price is down 40% over twelve months, which is disappointing given the progress made. You might even wonder if the share price was previously over-hyped. However, that's in the past now, and it's the future that matters most.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NYSE:ZUO Income Statement, July 18th 2019

Take a more thorough look at Zuora's financial health with this free report on its balance sheet.

A Different Perspective

While Zuora shareholders are down 40% for the year, the market itself is up 5.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 19%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Zuora may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 editorial-team@simplywallst.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.