It is a pleasure to report that the Medallion Financial Corp. (NASDAQ:MFIN) is up 49% in the last quarter. But that can’t change the reality that over the longer term (five years), the returns have been really quite dismal. In that time the share price has delivered a rude shock to holders, who find themselves down 62% after a long stretch. So we’re not so sure if the recent bounce should be celebrated. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.
Because Medallion Financial 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 it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last half decade, Medallion Financial saw its revenue increase by 40% per year. That’s well above most other pre-profit companies. Unfortunately for shareholders the share price has dropped 10% per year – disappointing considering the growth. It’s safe to say investor expectations are more grounded now. If you think the company can keep up its revenue growth, you’d have to consider the possibility that there’s an opportunity here.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Medallion Financial’s financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
We’ve already covered Medallion Financial’s share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Medallion Financial shareholders, and that cash payout explains why its total shareholder loss of 57%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
While the broader market gained around 19% in the last year, Medallion Financial shareholders lost 33%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For instance, we’ve identified 3 warning signs for Medallion Financial (1 is potentially serious) that you should be aware of.
We will like Medallion Financial 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 US exchanges.
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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. 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.
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