Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Skyfii Limited (ASX:SKF) share price is up 54% in the last 5 years, clearly besting the market return of around 33% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 26% in the last year.
Skyfii isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
For the last half decade, Skyfii can boast revenue growth at a rate of 44% 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 you think there could be more growth to come, now might be the time to take a close look at Skyfii. Opportunity lies where the market hasn't fully priced growth in the underlying business.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
If you are thinking of buying or selling Skyfii stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We're pleased to report that Skyfii shareholders have received a total shareholder return of 26% over one year. That's better than the annualised return of 9% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Skyfii has 2 warning signs we think you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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