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Did Changing Sentiment Drive Novatti Group's (ASX:NOV) Share Price Down By 20%?

Simply Wall St

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Novatti Group Limited (ASX:NOV) share price is down 20% in the last year. That's well bellow the market return of 21%. The silver lining (for longer term investors) is that the stock is still 18% higher than it was three years ago. The good news is that the stock is up 2.6% in the last week.

See our latest analysis for Novatti Group

Given that Novatti Group 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last twelve months, Novatti Group increased its revenue by 40%. That's definitely a respectable growth rate. Meanwhile, the share price is down 20% 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 graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

ASX:NOV Income Statement, February 18th 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Novatti Group's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Novatti Group hasn't been paying dividends, but its TSR of -20% exceeds its share price return of -20%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Novatti Group shareholders are down 20% for the year, but the broader market is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 6.8% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. It's always interesting to track share price performance over the longer term. But to understand Novatti Group better, we need to consider many other factors. Take risks, for example - Novatti Group has 5 warning signs (and 2 which are significant) we think you should know about.

We will like Novatti Group 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.