Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the RightCrowd Limited (ASX:RCW) share price slid 42% over twelve months. That falls noticeably short of the market return of around -9.7%. Because RightCrowd hasn’t been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 30% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 22% in the same timeframe.
See our latest analysis for RightCrowd
Given that RightCrowd didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
RightCrowd grew its revenue by 51% over the last year. That’s a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 42% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it’s worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there’s value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling RightCrowd stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We doubt RightCrowd shareholders are happy with the loss of 42% over twelve months. That falls short of the market, which lost 9.7%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. With the stock down 30% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 6 warning signs with RightCrowd (at least 3 which can’t be ignored) , and understanding them should be part of your investment process.
We will like RightCrowd better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at [email protected] 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.
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