For many, the main point of investing in the stock market is to achieve spectacular returns. When you find (and hold) a big winner, you can markedly improve your finances. For example, Houghton Mifflin Harcourt Company (NASDAQ:HMHC) has generated a beautiful 425% return in just a single year. On top of that, the share price is up 33% in about a quarter. Looking back further, the stock price is 54% higher than it was three years ago.
Houghton Mifflin Harcourt 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Houghton Mifflin Harcourt actually shrunk its revenue over the last year, with a reduction of 24%. So it's very confusing to see that the share price gained a whopping 425%. There can be no doubt this kind of decoupling of revenue growth and share price growth is unusual to see in loss making companies. To us, a gain like this looks like speculation, but there might be historical trends to back it up.
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. So it makes a lot of sense to check out what analysts think Houghton Mifflin Harcourt will earn in the future (free profit forecasts).
A Different Perspective
We're pleased to report that Houghton Mifflin Harcourt shareholders have received a total shareholder return of 425% over one year. There's no doubt those recent returns are much better than the TSR loss of 6% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Even so, be aware that Houghton Mifflin Harcourt is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...
Houghton Mifflin Harcourt is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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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