As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term 99 Technology Limited (ASX:NNT) shareholders, since the share price is down 23% in the last three years, falling well short of the market return of around 26%. The good news is that the stock is up 2.4% in the last week.
We don't think that 99 Technology'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.
Over three years, 99 Technology grew revenue at 5.1% per year. That's not a very high growth rate considering it doesn't make profits. Indeed, the stock dropped 7% over the last three years. If revenue growth accelerates, we might see the share price bounce. But ultimately the key will be whether the company can become profitability.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on 99 Technology's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's nice to see that 99 Technology shareholders have received a total shareholder return of 13% over the last year. That certainly beats the loss of about 2% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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 for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with 99 Technology , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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