If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Ainsworth Game Technology Limited (ASX:AGI) share price is up 89% in the last year, clearly besting the market return of around 44% (not including dividends). That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 55% in the last three years.
Ainsworth Game Technology 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last year Ainsworth Game Technology saw its revenue shrink by 49%. The stock is up 89% in that time, a fine performance given the revenue drop. We can correlate the share price rise with revenue or profit growth, but it seems the market had previously expected weaker results, and sentiment around the stock is improving.
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 Ainsworth Game Technology stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's nice to see that Ainsworth Game Technology shareholders have received a total shareholder return of 89% over the last year. There's no doubt those recent returns are much better than the TSR loss of 10% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Ainsworth Game Technology you should know about.
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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 AU exchanges.
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Ainsworth Game Technology
Ainsworth Game Technology Limited designs, develops, manufactures, sells, distributes, and services electronic gaming machines, and other related equipment and services.
Flawless balance sheet with moderate growth potential.