Unless you borrow money to invest, the potential losses are limited. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Mahanagar Telephone Nigam Limited (NSE:MTNL) share price has soared 105% in the last 1 year. Most would be very happy with that, especially in just one year! We note the stock price is up 11% in the last seven days. Looking back further, the stock price is 51% higher than it was three years ago.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Mahanagar Telephone Nigam 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. 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 does expect good top-line growth.
In the last year Mahanagar Telephone Nigam saw its revenue shrink by 20%. So we would not have expected the share price to rise 105%. It just goes to show the market doesn't always pay attention to the reported numbers. Of course, it could be that the market expected this revenue drop.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
It's nice to see that Mahanagar Telephone Nigam shareholders have received a total shareholder return of 105% over the last year. That's better than the annualised return of 3% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - Mahanagar Telephone Nigam has 2 warning signs we think you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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.
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