Novatti Group Limited (ASX:NOV) shareholders will doubtless be very grateful to see the share price up 43% in the last month. But if you look at the last five years the returns have not been good. After all, the share price is down 34% in that time, significantly under-performing the market.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
Novatti Group wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 five years, Novatti Group grew its revenue at 40% per year. That's well above most other pre-profit companies. Shareholders are no doubt disappointed with the loss of 6%, each year, in that time. You could say that the market has been harsh, given the top line growth. So now is probably an apt time to look closer at the stock, if you think it has potential.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Take a more thorough look at Novatti Group's financial health with this free report on its balance sheet.
A Different Perspective
Investors in Novatti Group had a tough year, with a total loss of 24%, against a market gain of about 2.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 5 warning signs for Novatti Group (2 can't be ignored) that you should be aware of.
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.
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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.
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