Shareholders have faith in loss-making MedinCell (EPA:MEDCL) as stock climbs 23% in past week, taking five-year gain to 81%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the MedinCell S.A. (EPA:MEDCL) share price is up 81% in the last 5 years, clearly besting the market return of around 38% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 26% in the last year.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for MedinCell

MedinCell isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 5 years MedinCell saw its revenue grow at 22% per year. That's well above most pre-profit companies. While the compound gain of 13% per year is good, it's not unreasonable given the strong revenue growth. If the strong revenue growth continues, we'd hope to see the share price to follow, in time. Of course, you'll have to research the business more fully to figure out if this is an attractive opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

It's nice to see that MedinCell shareholders have received a total shareholder return of 26% over the last year. That's better than the annualised return of 13% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for MedinCell (of which 1 doesn't sit too well with us!) you should know about.

Of course MedinCell 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 French 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.