DroneShield (ASX:DRO) hikes 12% this week, taking five-year gains to 936%

Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the DroneShield Limited (ASX:DRO) share price has soared 936% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 116% gain in the last three months. It really delights us to see such great share price performance for investors.

The past week has proven to be lucrative for DroneShield investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for DroneShield

Given that DroneShield only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.

For the last half decade, DroneShield can boast revenue growth at a rate of 57% per year. Even measured against other revenue-focussed companies, that's a good result. Fortunately, the market has not missed this, and has pushed the share price up by 60% per year in that time. Despite the strong run, top performers like DroneShield have been known to go on winning for decades. So we'd recommend you take a closer look at this one, but keep in mind the market seems optimistic.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how DroneShield has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

It's good to see that DroneShield has rewarded shareholders with a total shareholder return of 517% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 60% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for DroneShield you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.