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When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Calix Limited (ASX:CXL). Its share price is already up an impressive 271% in the last twelve months. It's also good to see the share price up 17% over the last quarter. But this could be related to the strong market, which is up 7.2% in the last three months. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
Because Calix made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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 year Calix saw its revenue grow by 256%. That's well above most other pre-profit companies. Meanwhile, the market has paid attention, sending the share price soaring 271% in response. It's great to see strong revenue growth, but the question is whether it can be sustained. The strong share price rise indicates optimism, so there may be a better opportunity for buyers as the hype fades a bit.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Calix boasts a total shareholder return of 271% for the last year. The more recent returns haven't been as impressive as the longer term returns, coming in at just 17%. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Calix is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
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 AU 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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