For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. To wit, the PowerCell Sweden AB (publ) (STO:PCELL) share price has soared 749% over five years. If that doesn't get you thinking about long term investing, we don't know what will. And in the last month, the share price has gained 27%. It really delights us to see such great share price performance for investors.
In light of the stock dropping 5.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
PowerCell Sweden 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
For the last half decade, PowerCell Sweden can boast revenue growth at a rate of 39% per year. That's well above most pre-profit companies. Arguably, this is well and truly reflected in the strong share price gain of 53%(per year) over the same period. Despite the strong run, top performers like PowerCell Sweden have been known to go on winning for decades. So we'd recommend you take a closer look at this one, but keep in mind the market seems optimistic.
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
While the broader market gained around 38% in the last year, PowerCell Sweden shareholders lost 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 53%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 instance, we've identified 1 warning sign for PowerCell Sweden that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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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