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The Xref (ASX:XF1) Share Price Is Down 41% So Some Shareholders Are Getting Worried

Simply Wall St

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Xref Limited (ASX:XF1) shareholders have had that experience, with the share price dropping 41% in three years, versus a market return of about 37%. And over the last year the share price fell 41%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.

See our latest analysis for Xref

Xref isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.

Over three years, Xref grew revenue at 52% per year. That's well above most other pre-profit companies. The share price drop of 16% per year over three years would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

ASX:XF1 Income Statement, February 7th 2020
ASX:XF1 Income Statement, February 7th 2020

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

A Different Perspective

The last twelve months weren't great for Xref shares, which cost holders 41%, while the market was up about 19%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 16% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. For example, we've discovered 4 warning signs for Xref that you should be aware of before investing here.

We will like Xref better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

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. Thank you for reading.