Zuora, Inc. (NYSE:ZUO) shareholders should be happy to see the share price up 14% in the last quarter. But that is minimal compensation for the share price under-performance over the last year. In fact the stock is down 25% in the last year, well below the market return.
Zuora 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Zuora grew its revenue by 22% over the last year. That’s definitely a respectable growth rate. Unfortunately that wasn’t good enough to stop the share price dropping 25%. This implies the market was expecting better growth. But if revenue keeps growing, then at a certain point the share price would likely follow.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Zuora’s financial health with this free report on its balance sheet.
A Different Perspective
While Zuora shareholders are down 25% for the year, the market itself is up 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It’s great to see a nice little 14% rebound in the last three months. Let’s just hope this isn’t the widely-feared ‘dead cat bounce’ (which would indicate further declines to come). 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 example, we’ve discovered 2 warning signs for Zuora (1 is a bit unpleasant!) that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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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