Shareholders have faith in loss-making Magma Group Berhad (KLSE:MAGMA) as stock climbs 48% in past week, taking one-year gain to 90%

Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. For example, the Magma Group Berhad (KLSE:MAGMA) share price is up 90% in the last 1 year, clearly besting the market decline of around 5.9% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! And shareholders have also done well over the long term, with an increase of 85% in the last three years.

The past week has proven to be lucrative for Magma Group Berhad investors, so let's see if fundamentals drove the company's one-year performance.

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Magma Group Berhad 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 hope to see good revenue growth. 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.

Magma Group Berhad grew its revenue by 23% last year. We respect that sort of growth, no doubt. Buyers pushed the share price 90% in response, which isn't unreasonable. If revenue stays on trend, there may be plenty more share price gains to come. But it's crucial to check profitability and cash flow before forming a view on the future.

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 that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Magma Group Berhad's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Magma Group Berhad shareholders have received a total shareholder return of 90% over the last year. That certainly beats the loss of about 0.3% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Magma Group Berhad (of which 2 are concerning!) you should know about.

Of course Magma Group Berhad 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 Malaysian 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.