Passive investing in index funds can generate returns that roughly match the overall market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the AXT, Inc. (NASDAQ:AXTI) share price is up 61% in the last five years, slightly above the market return. The 2.0% share price rise over the last year is decent, but not great.
Because AXT 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. 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.
For the last half decade, AXT can boast revenue growth at a rate of 5.3% per year. That’s not a very high growth rate considering the bottom line. The modest growth is probably broadly reflected in the share price, which is up 10.0%, per year over 5 years. We’d be looking for the underlying business to grow revenue a bit faster.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on AXT’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
AXT provided a TSR of 2.0% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 10.0% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It’s always interesting to track share price performance over the longer term. But to understand AXT better, we need to consider many other factors. Case in point: We’ve spotted 1 warning sign for AXT 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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