MGM Wireless Limited (ASX:MWR) shareholders might be concerned after seeing the share price drop 14% in the last quarter. But that doesn’t change the fact that the returns over the last three years have been very strong. In fact, the share price is up a full 261% compared to three years ago. It’s not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.
MGM Wireless isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last 3 years MGM Wireless saw its revenue grow at 18% per year. That’s a very respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 53% per year over three years. The business has made good progress on the top line, but the market is extrapolating the growth. It would be worth thinking about when profits will flow, since that milestone will attract more attention.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Dividend Lost
It’s important to keep in mind that we’ve been talking about the share price returns, which don’t include dividends, while the total shareholder return does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 3 years, MGM Wireless generated a TSR of 276%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
It’s nice to see that MGM Wireless shareholders have received a total shareholder return of 219% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 21% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on MGM Wireless it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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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