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Reverse Corp Limited (ASX:REF) shareholders will doubtless be very grateful to see the share price up 163% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 68%, which falls well short of the return you could get by buying an index fund.
Reverse isn’t a profitable company, so 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. 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.
Over half a decade Reverse reduced its trailing twelve month revenue by 7.6% for each year. While far from catastrophic that is not good. The share price decline of 20% compound, over five years, is understandable given the company is losing money, and revenue is moving in the wrong direction. The chance of imminent investor enthusiasm for this stock seems slimmer than Louise Brooks. Ultimately, it may be worth watching – should revenue pick up, the share price might follow.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Dividend Lost
The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. Over the last 5 years, Reverse generated a TSR of 8.6%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
It’s nice to see that Reverse shareholders have received a total shareholder return of 90% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.7% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Reverse by clicking this link.
Reverse is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.