Is Allegra Orthopaedics’s Share Price Gain Of 133% Well Earned?

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. One great example is Allegra Orthopaedics Limited (ASX:AMT) which saw its share price drive 133% higher over five years. The last week saw the share price soften some 48%.

View our latest analysis for Allegra Orthopaedics

Given that Allegra Orthopaedics 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 yet make profits, we’d generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last 5 years Allegra Orthopaedics saw its revenue shrink by 13% per year. On the other hand, the share price done the opposite, gaining 18%, compound, each year. It just goes to show tht the market is forward looking, and it’s not always easy to predict the future based on past trends. Still, this situation makes us a little wary of the stock.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

ASX:AMT Income Statement, February 27th 2019
ASX:AMT Income Statement, February 27th 2019

Take a more thorough look at Allegra Orthopaedics’s financial health with this free report on its balance sheet.

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Allegra Orthopaedics’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Allegra Orthopaedics hasn’t been paying dividends, but its TSR of 156% exceeds its share price return of 133%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.

A Different Perspective

While the broader market gained around 6.4% in the last year, Allegra Orthopaedics shareholders lost 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 21% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.