Did Gobarto’s Share Price Deserve to Gain 35%?

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Gobarto S.A. (WSE:GOB), which is up 35%, over three years, soundly beating the market return of 18% (not including dividends).

See our latest analysis for Gobarto

Gobarto isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Gobarto’s revenue trended up 13% each year over three years. That’s a very respectable growth rate. The share price gain of 10% per year shows that the market is paying attention to this growth. If that’s the case, then it could be well worth while to research the growth trajectory. Keep in mind that the strength of the balance sheet impacts the options open to the company.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

WSE:GOB Income Statement, March 1st 2019
WSE:GOB Income Statement, March 1st 2019

Take a more thorough look at Gobarto’s financial health with this free report on its balance sheet.

A Different Perspective

We regret to report that Gobarto shareholders are down 20% for the year. Unfortunately, that’s worse than the broader market decline of 2.5%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 0.1% per year over five years. 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

Of course Gobarto 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 PL exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.