Did Business Growth Power Nearmap's (ASX:NEA) Share Price Gain of 288%?

Nearmap Ltd (ASX:NEA) shareholders might be concerned after seeing the share price drop 21% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. In fact, the share price is 288% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price.

See our latest analysis for Nearmap

Because Nearmap 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last 5 years Nearmap saw its revenue grow at 28% per year. Even measured against other revenue-focussed companies, that's a good result. Meanwhile, its share price performance certainly reflects the strong growth, given the share price grew at 31% per year, compound, during the period. So it seems likely that buyers have paid attention to the strong revenue growth. To our minds that makes Nearmap worth investigating - it may have its best days ahead.

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Nearmap will earn in the future (free profit forecasts).

A Different Perspective

Nearmap shareholders are down 22% for the year, but the market itself is up 31%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 31% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Nearmap you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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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