Long term investing can be life changing when you buy and hold the truly great businesses. While not every stock performs well, when investors win, they can win big. For example, the Avita Medical Limited (ASX:AVH) share price is up a whopping 730% in the last half decade, a handsome return for long term holders. If that doesn’t get you thinking about long term investing, we don’t know what will. It’s also up 13% in about a month.
We love happy stories like this one. The company should be really proud of that performance!
Because Avita Medical 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 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 5 years Avita Medical saw its revenue grow at 26% per year. Even measured against other revenue-focussed companies, that’s a good result. Arguably, this is well and truly reflected in the strong share price gain of 53%(per year) over the same period. Despite the strong run, top performers like Avita Medical have been known to go on winning for decades. So we’d recommend you take a closer look at this one, but keep in mind the market seems optimistic.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Avita Medical’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Avita Medical’s TSR, at 840% is higher than its share price return of 730%. When you consider it hasn’t been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
It’s good to see that Avita Medical has rewarded shareholders with a total shareholder return of 462% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 57% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Avita Medical better, we need to consider many other factors. Be aware that Avita Medical is showing 4 warning signs in our investment analysis , and 1 of those is significant…
Of course Avita Medical may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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