In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that’s been the case for longer term Universal Biosensors, Inc. (ASX:UBI) shareholders, since the share price is down 37% in the last three years, falling well short of the market return of around 36%. The more recent news is of little comfort, with the share price down 21% in a year. The falls have accelerated recently, with the share price down 12% in the last three months. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Because Universal Biosensors is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over three years, Universal Biosensors grew revenue at 36% per year. That’s well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 14% per year. That seems like an unlucky result for holders. It seems likely that actual growth fell short of shareholders’ expectations. Still, with high hopes now tempered, now might prove to be an opportunity to buy.
The company’s revenue and earnings (over time) are depicted in the image below.
This free interactive report on Universal Biosensors’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Universal Biosensors shareholders are down 21% for the year, but the market itself is up 22%. 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. Longer term investors wouldn’t be so upset, since they would have made 4.8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You could get a better understanding of Universal Biosensors’s growth by checking out this more detailed historical graph of 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 AU 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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