Megaport (ASX:MP1) pulls back 6.1% this week, but still delivers shareholders respectable 9.5% CAGR over 5 years

When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Megaport Limited (ASX:MP1) shareholders have enjoyed a 57% share price rise over the last half decade, well in excess of the market return of around 46% (not including dividends).

Although Megaport has shed AU$111m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Megaport

We don't think that Megaport's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last 5 years Megaport saw its revenue grow at 29% per year. That's well above most pre-profit companies. It's good to see that the stock has 9%, but not entirely surprising given revenue shows strong growth. If the strong revenue growth continues, we'd hope to see the share price to follow, in time. Of course, you'll have to research the business more fully to figure out if this is an attractive opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Megaport is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Megaport stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

While the broader market gained around 3.8% in the last year, Megaport shareholders lost 28%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Megaport is showing 1 warning sign in our investment analysis , you should know about...

We will like Megaport better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.