The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Cluey Ltd (ASX:CLU) have tasted that bitter downside in the last year, as the share price dropped 26%. That contrasts poorly with the market return of 9.2%. Cluey may have better days ahead, of course; we've only looked at a one year period. Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days.
If the past week is anything to go by, investor sentiment for Cluey isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Cluey 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last year Cluey saw its revenue grow by 255%. That's a strong result which is better than most other loss making companies. The share price drop of 26% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Cluey stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Given that the market gained 9.2% in the last year, Cluey shareholders might be miffed that they lost 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 25% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Cluey better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Cluey .
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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. 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.