When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Orbital Corporation Limited (ASX:OEC) share price has soared 118% in the last half decade. Most would be very happy with that. And in the last week the share price has popped 8.8%.
Given that Orbital only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. 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.
In the last 5 years Orbital saw its revenue grow at 7.5% per year. That's a fairly respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 17% per year over five years. Given that the business has made good progress on the top line, it would be worth taking a look at the growth trend. Accelerating growth can be a sign of an inflection point - and could indicate profits lie ahead. Worth watching 100%
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We know that Orbital has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Orbital
A Different Perspective
Orbital shareholders are down 12% for the year, but the market itself is up 11%. 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 17%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before spending more time on Orbital it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 email@example.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.