Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Philly Shipyard ASA (OB:PHLY) share price is up 67% in the last year, clearly besting the market return of around 41% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren't so impressive, with stock gaining just 12% in three years.
We don't think that Philly Shipyard's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over the last twelve months, Philly Shipyard's revenue grew by 93%. That's stonking growth even when compared to other loss-making stocks. The solid 67% share price gain goes down pretty well, but it's not necessarily as good as you might expect given the top notch revenue growth. If that's the case, now might be the time to take a close look at Philly Shipyard. Since we evolved from monkeys, we think in linear terms by nature. So if growth goes exponential, opportunity may exist for the enlightened.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Philly Shipyard's financial health with this free report on its balance sheet.
A Different Perspective
It's nice to see that Philly Shipyard shareholders have received a total shareholder return of 67% over the last year. That certainly beats the loss of about 7% 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. For example, we've discovered 2 warning signs for Philly Shipyard (1 shouldn't be ignored!) that you should be aware of before investing here.
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 NO 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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