Avita Medical Limited (ASX:AVH) shareholders might understandably be very concerned that the share price has dropped 42% in the last quarter. But that doesn’t change the fact that the returns over the last half decade have been spectacular. To be precise, the stock price is 510% higher than it was five years ago, a wonderful performance by any measure. Arguably, the recent fall is to be expected after such a strong rise. But the real question is whether the business fundamentals can improve over the long term.
We love happy stories like this one. The company should be really proud of that performance!
Given that Avita Medical 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. 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.
For the last half decade, Avita Medical can boast revenue growth at a rate of 58% per year. Even measured against other revenue-focussed companies, that’s a good result. Fortunately, the market has not missed this, and has pushed the share price up by 44% per year in that time. It’s never too late to start following a top notch stock like Avita Medical, since some long term winners go on winning for decades. So we’d recommend you take a closer look at this one, but keep in mind the market seems optimistic.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Avita Medical’s balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Avita Medical’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Avita Medical’s TSR, at 592% is higher than its share price return of 510%. When you consider it hasn’t been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
While it’s certainly disappointing to see that Avita Medical shares lost 4.1% throughout the year, that wasn’t as bad as the market loss of 11%. Longer term investors wouldn’t be so upset, since they would have made 47%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It’s always interesting to track share price performance over the longer term. But to understand Avita Medical better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Avita Medical you should know about.
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 AU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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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