Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. Mistakes are inevitable, but a single top stock pick can cover any losses, and so much more. Take, for example, the Square, Inc. (NYSE:SQ) share price, which skyrocketed 320% over three years.
Because Square 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years Square has grown its revenue at 34% annually. That’s much better than most loss-making companies. In light of this attractive revenue growth, it seems somewhat appropriate that the share price has been rocketing, boasting a gain of 61% per year, over the same period. Despite the strong run, top performers like Square have been known to go on winning for decades. In fact, it might be time to put it on your watchlist, if you’re not already familiar with the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Square in this interactive graph of future profit estimates.
A Different Perspective
Over the last year, Square shareholders took a loss of 0.9%. In contrast the market gained about 29%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 61% per year over three years. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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