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This month, we saw the 8common Limited (ASX:8CO) up an impressive 50%. But that is meagre solace in the face of the shocking decline over three years. Indeed, the share price is down a whopping 78% in the last three years. So it sure is nice to see a big of an improvement. The thing to think about is whether the business has really turned around.
8common isn’t yet profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.
Over the last three years, 8common’s revenue dropped 6.6% per year. That is not a good result. The share price fall of 39% (per year, over three years) is a stern reminder that money-losing companies are expected to grow revenue. This business clearly needs to grow revenues if it is to perform as investors hope. There’s no more than a snowball’s chance in hell that share price will head back to its old highs, in the short term.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It’s probably worth noting that the CEO is paid less than the median at similar sized 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. This free interactive report on 8common’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between 8common’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. We note that 8common’s TSR, at -75% is higher than its share price rise of -78%. When you consider it hasn’t been paying a dividend, this data suggests shareholders may have had the opportunity to acquire attractively priced shares in the business.
A Different Perspective
The last twelve months weren’t great for 8common shares, which cost holders 13%, while the market was up about 7.9%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn’t pretty, with investment losses running at 37% per year over three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like 8common 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.
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 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. Thank you for reading.