Model N, Inc. (NYSE:MODN) shareholders might understandably be very concerned that the share price has dropped 31% in the last quarter. In contrast, the return over three years has been impressive. In three years the stock price has launched 127% higher: a great result. After a run like that some may not be surprised to see prices moderate. If the business can perform well for years to come, then the recent drop could be an opportunity.
Model N wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.
Over the last three years Model N has grown its revenue at 7.3% annually. That’s not a very high growth rate considering it doesn’t make profits. In comparison, the share price rise of 31% per year over the last three years is pretty impressive. We’d need to take a closer look at the revenue and profit trends to see whether the improvements might justify that sort of increase. It seems likely that the market is pretty optimistic about Model N, given it is losing money.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Model N stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We’re pleased to report that Model N shareholders have received a total shareholder return of 32% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example – Model N has 3 warning signs we think you should be aware of.
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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 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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