Investors in AFC Energy (LON:AFC) from three years ago are still down 46%, even after 14% gain this past week

AFC Energy plc (LON:AFC) shareholders should be happy to see the share price up 14% in the last week. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 46% in the last three years, significantly under-performing the market.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

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AFC Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last three years, AFC Energy saw its revenue grow by 82% per year, compound. That is faster than most pre-profit companies. The share price drop of 13% per year over three years would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. It's possible that the prior share price assumed unrealistically high future growth. Still, with high hopes now tempered, now might prove to be an opportunity to buy.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Investors in AFC Energy had a tough year, with a total loss of 20%, against a market gain of about 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with AFC Energy (at least 1 which is concerning) , and understanding them should be part of your investment process.

AFC Energy is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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