As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Bubs Australia Limited (ASX:BUB) shareholders, since the share price is down 34% in the last three years, falling well short of the market return of around 33%. And the ride hasn't got any smoother in recent times over the last year, with the price 29% lower in that time. The falls have accelerated recently, with the share price down 17% in the last three months.
Because Bubs Australia made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, Bubs Australia saw its revenue grow by 43% per year, compound. That is faster than most pre-profit companies. While its revenue increased, the share price dropped at a rate of 10% per year. That seems like an unlucky result for holders. It seems likely that actual growth fell short of shareholders' expectations. Still, with high hopes now tempered, now might prove to be an opportunity to buy.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Bubs Australia in this interactive graph of future profit estimates.
A Different Perspective
Over the last year, Bubs Australia shareholders took a loss of 29%. In contrast the market gained about 41%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 10% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. To that end, you should be aware of the 2 warning signs we've spotted with Bubs Australia .
We will like Bubs Australia better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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