Shareholders Of Ariadne Australia (ASX:ARA) Must Be Happy With Their 63% Return

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Ariadne Australia Limited (ASX:ARA) shareholders have enjoyed a 40% share price rise over the last half decade, well in excess of the market return of around 26% (not including dividends).

See our latest analysis for Ariadne Australia

Given that Ariadne Australia didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last half decade Ariadne Australia's revenue has actually been trending down at about 3.1% per year. Even though revenue hasn't increased, the stock actually gained 7%, per year, during the same period. To us that suggests that there probably isn't a lot of correlation between the past revenue performance and the share price, but a closer look at analyst forecasts and the bottom line may well explain a lot.

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

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Ariadne Australia's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered Ariadne Australia'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. Ariadne Australia's TSR of 63% for the 5 years exceeded its share price return, because it has paid dividends.

A Different Perspective

Ariadne Australia shareholders are down 14% for the year, but the market itself is up 2.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 10%, 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. 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 Ariadne Australia (1 doesn't sit too well with us) that you should be aware of.

Ariadne Australia is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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