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Investing in Otto Energy (ASX:OEL) three years ago would have delivered you a 80% gain

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. Just take a look at Otto Energy Limited (ASX:OEL), which is up 80%, over three years, soundly beating the market return of 7.5% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 24%.

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Otto Energy

Otto Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

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Over the last three years Otto Energy has grown its revenue at 20% annually. That's much better than most loss-making companies. The share price rise of 22% per year throughout that time is nice to see, and given the revenue growth, that gain seems somewhat justified. If that's the case, now might be the time to take a close look at Otto Energy. A window of opportunity may reveal itself with time, if the business can trend to profitability.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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

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

A Different Perspective

It's nice to see that Otto Energy shareholders have received a total shareholder return of 24% over the last year. There's no doubt those recent returns are much better than the TSR loss of 10% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Otto Energy better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Otto Energy you should know about.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

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

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.