The 5.7% return this week takes NEXTDC's (ASX:NXT) shareholders five-year gains to 91%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the NEXTDC share price has climbed 91% in five years, easily topping the market return of 14% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 44%.

The past week has proven to be lucrative for NEXTDC investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for NEXTDC

NEXTDC 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last 5 years NEXTDC saw its revenue grow at 17% per year. That's well above most pre-profit companies. It's good to see that the stock has 14%, but not entirely surprising given revenue shows strong growth. If you think there could be more growth to come, now might be the time to take a close look at NEXTDC. Opportunity lies where the market hasn't fully priced growth in the underlying business.

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

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 we recommend checking out this free report showing consensus forecasts

A Different Perspective

It's good to see that NEXTDC has rewarded shareholders with a total shareholder return of 44% in the last twelve months. That gain is better than the annual TSR over five years, which is 14%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand NEXTDC better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with NEXTDC (at least 1 which is concerning) , and understanding them should be part of your investment process.

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 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.