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Imagine Owning RightCrowd (ASX:RCW) And Wondering If The 29% Share Price Slide Is Justified

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the RightCrowd Limited (ASX:RCW) share price is down 29% in the last year. That's well bellow the market return of 16%. RightCrowd hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The falls have accelerated recently, with the share price down 15% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Check out our latest analysis for RightCrowd

RightCrowd isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

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In the last twelve months, RightCrowd increased its revenue by 70%. That's well above most other pre-profit companies. The share price drop of 29% 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 brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.

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

ASX:RCW Income Statement, October 14th 2019
ASX:RCW Income Statement, October 14th 2019

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

A Different Perspective

While RightCrowd shareholders are down 29% for the year, the market itself is up 16%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 15% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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.

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. Thank you for reading.