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Genetic Signatures (ASX:GSS) shareholders have earned a 23% CAGR over the last five years

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  • GSS.AX

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Genetic Signatures Limited (ASX:GSS) stock is up an impressive 177% over the last five years. On top of that, the share price is up 24% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Genetic Signatures

While Genetic Signatures made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

For the last half decade, Genetic Signatures can boast revenue growth at a rate of 48% per year. That's well above most pre-profit companies. So it's not entirely surprising that the share price reflected this performance by increasing at a rate of 23% per year, in that time. So it seems likely that buyers have paid attention to the strong revenue growth. To our minds that makes Genetic Signatures worth investigating - it may have its best days ahead.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
earnings-and-revenue-growth

It is of course excellent to see how Genetic Signatures has grown profits over the years, but the future is more important for shareholders. This free interactive report on Genetic Signatures' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Genetic Signatures shareholders are down 35% for the year, but the market itself is up 29%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 23%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. For example, we've discovered 1 warning sign for Genetic Signatures that you should be aware of before investing here.

Of course Genetic Signatures may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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