Investing in R.E.A. Holdings (LON:RE.) three years ago would have delivered you a 76% gain

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, R.E.A. Holdings plc (LON:RE.) shareholders have seen the share price rise 76% over three years, well in excess of the market return (5.2%, not including dividends).

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for R.E.A. Holdings

R.E.A. Holdings 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.

Over the last three years R.E.A. Holdings has grown its revenue at 5.6% annually. Considering the company is losing money, we think that rate of revenue growth is uninspiring. The modest growth is probably broadly reflected in the share price, which is up 21%, per year over 3 years. Ultimately, the important thing is whether the company is trending to profitability. Given the market doesn't seem too excited about the stock, a closer look at the financial data could pay off, if you can find indications of a stronger growth trend in the future.

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

earnings-and-revenue-growth

This free interactive report on R.E.A. Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 11% in the last year, R.E.A. Holdings shareholders lost 6.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 8% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for R.E.A. Holdings that you should be aware of.

Of course R.E.A. Holdings 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 British exchanges.

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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.