Update: Elmo Software (ASX:ELO) Stock Gained 28% In The Last Three Years

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Elmo Software Limited (ASX:ELO) share price is up 28% in the last three years, clearly besting the market return of around 15% (not including dividends).

Check out our latest analysis for Elmo Software

Elmo Software isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over the last three years Elmo Software has grown its revenue at 35% annually. That's well above most pre-profit companies. The share price rise of 9% per year throughout that time is nice to see, and given the revenue growth, that gain seems somewhat justified. If that's the case, now might be the time to take a close look at Elmo Software. A window of opportunity may reveal itself with time, if the business can trend to profitability.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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.

A Different Perspective

Over the last year, Elmo Software shareholders took a loss of 21%. In contrast the market gained about 3.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 9% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. It's always interesting to track share price performance over the longer term. But to understand Elmo Software better, we need to consider many other factors. For instance, we've identified 3 warning signs for Elmo Software (1 makes us a bit uncomfortable) that you should be aware of.

But note: Elmo Software may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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