Should Rumo (BVMF:RAIL3) Be Disappointed With Their 51% Profit?

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Rumo S.A. (BVMF:RAIL3), which is up 51%, over three years, soundly beating the market return of 35% (not including dividends).

View our latest analysis for Rumo

We don't think that Rumo's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

Over the last three years Rumo has grown its revenue at 5.0% annually. Considering the company is losing money, we think that rate of revenue growth is uninspiring. In that time the share price is up 15% per year, which is not unreasonable given the revenue gorwth. Ultimately, the important thing is whether the company is trending to profitability. Given the market doesn't seem too excited about the stock, a closer look at the financial data could pay off, if you can find indications of a stronger growth trend in the future.

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

Rumo is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Rumo stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

Rumo shareholders are down 13% for the year, but the broader market is up 7.0%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 15% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. It's always interesting to track share price performance over the longer term. But to understand Rumo better, we need to consider many other factors. For example, we've discovered 3 warning signs for Rumo (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course Rumo may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on BR 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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