Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Conduit Holdings Limited (LON:CRE) shareholders over the last year, as the share price declined 37%. That's disappointing when you consider the market declined 3.6%. Conduit Holdings may have better days ahead, of course; we've only looked at a one year period.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Conduit Holdings 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. 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.
Conduit Holdings grew its revenue by 219% over the last year. That's a strong result which is better than most other loss making companies. The share price drop of 37% 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 monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Conduit Holdings stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Conduit Holdings the TSR over the last 1 year was -32%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We doubt Conduit Holdings shareholders are happy with the loss of 32% over twelve months (even including dividends). That falls short of the market, which lost 3.6%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 0.6%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Conduit Holdings , and understanding them should be part of your investment process.
Conduit Holdings is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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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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