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On average, over time, stock markets tend to rise higher. This makes investing attractive. But if when you choose to buy stocks, some of them will be below average performers. For example, the Outset Medical, Inc. (NASDAQ:OM), share price is up over the last year, but its gain of 16% trails the market return. Outset Medical hasn't been listed for long, so it's still not clear if it is a long term winner.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
Because Outset Medical made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last year Outset Medical saw its revenue grow by 176%. That's well above most other pre-profit companies. To be blunt the 16% is underwhelming given the strong revenue growth. When revenue spikes but the share price doesn't we can't help wondering if the market is missing something. It could be that the stock was previously over-hyped, or that losses are causing concern for the market, but this could be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Outset Medical shareholders have gained 16% for the year. The bad news is that's no better than the average market return, which was roughly 33%. However, that falls short of the 19% gain it has made, for shareholders, in the last three months. The very recent increase in the share price could be evidence that the narrative is changing for the better due to fundamental improvements. 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. Take risks, for example - Outset Medical has 3 warning signs we think you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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