Can You Imagine How Jubilant Elmo Software's (ASX:ELO) Shareholders Feel About Its 111% Share Price Gain?

By
Simply Wall St
Published
October 27, 2020
ASX:ELO

It hasn't been the best quarter for Elmo Software Limited (ASX:ELO) shareholders, since the share price has fallen 19% in that time. But in three years the returns have been great. Indeed, the share price is up a very strong 111% in that time. After a run like that some may not be surprised to see prices moderate. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

View our latest analysis for Elmo Software

Elmo Software wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.

Elmo Software's revenue trended up 35% each year over three years. That's well above most pre-profit companies. Meanwhile, the share price performance has been pretty solid at 28% compound over three years. But it does seem like the market is paying attention to strong revenue growth. That's not to say we think the share price is too high. In fact, it might be worth keeping an eye on this one.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
ASX:ELO Earnings and Revenue Growth October 27th 2020

If you are thinking of buying or selling Elmo Software stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

The last twelve months weren't great for Elmo Software shares, which performed worse than the market, costing holders 18%. Meanwhile, the broader market slid about 3.7%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 28% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. Take risks, for example - Elmo Software has 4 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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