Should Reed's (NASDAQ:REED) Be Disappointed With Their 45% Profit?

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By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Reed's, Inc. (NASDAQ:REED), which is up 45%, over three years, soundly beating the market return of 36% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 19% in the last year.

Check out our latest analysis for Reed's

Reed's isn't a profitable company, so 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.

In the last 3 years Reed's saw its revenue shrink by 6.7% per year. The revenue growth might be lacking but the share price has gained 13% each year in that time. Unless the company is going to make profits soon, we would be pretty cautious about it.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

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. You can see what analysts are predicting for Reed's in this interactive graph of future profit estimates.

A Different Perspective

We're pleased to report that Reed's shareholders have received a total shareholder return of 19% over one year. That certainly beats the loss of about 5.6% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

Reed's 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.

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.