While it may not be enough for some shareholders, we think it is good to see the Arco Platform Limited (NASDAQ:ARCE) share price up 13% in a single quarter. But that doesn't change the fact that the returns over the last year have been less than pleasing. In fact, the price has declined 28% in a year, falling short of the returns you could get by investing in an index fund.
While Arco Platform made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last twelve months, Arco Platform increased its revenue by 49%. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 28% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Arco Platform has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Arco Platform
A Different Perspective
While Arco Platform shareholders are down 28% for the year, the market itself is up 44%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 13% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Arco Platform has 2 warning signs we think you should be aware of.
Of course Arco Platform 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 US 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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