In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that’s been the case for longer term Granite Construction Incorporated (NYSE:GVA) shareholders, since the share price is down 50% in the last three years, falling well short of the market return of around 49%. And over the last year the share price fell 36%, so we doubt many shareholders are delighted.
Given that Granite Construction didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last three years, Granite Construction saw its revenue grow by 12% per year, compound. That’s a pretty good rate of top-line growth. So some shareholders would be frustrated with the compound loss of 21% per year. To be frank we’re surprised to see revenue growth and share price growth diverge so strongly. So this is one stock that might be worth investigating further, or even adding to your watchlist.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Granite Construction
What about the Total Shareholder Return (TSR)?
We’ve already covered Granite Construction’s share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that Granite Construction’s TSR, which was a 49% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
Investors in Granite Construction had a tough year, with a total loss of 35% (including dividends) , against a market gain of about 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 4.9% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand Granite Construction better, we need to consider many other factors. Be aware that Granite Construction is showing 2 warning signs in our investment analysis , you should know about…
Granite Construction is not the only stock that insiders are buying. 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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