It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For instance the Establishment Labs Holdings Inc. (NASDAQ:ESTA) share price is 140% higher than it was three years ago. Most would be happy with that. In more good news, the share price has risen 24% in thirty days. We note that Establishment Labs Holdings reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report.
Since the stock has added US$186m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Establishment Labs Holdings 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. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Establishment Labs Holdings' revenue trended up 20% each year over three years. That's a very respectable growth rate. Broadly speaking, this solid progress may well be reflected by the healthy share price gain of 34% per year over three years. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.
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. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Establishment Labs Holdings stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Establishment Labs Holdings shareholders have gained 5.6% over twelve months. This isn't far from the market return of 6.0%. Notably, the longer term shareholders are better off with their TSR of 34% per year over the last three years. Share price gains are anything but steady, so it's a positive to see that the longer term returns are reasonable. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Establishment Labs Holdings , and understanding them should be part of your investment process.
Establishment Labs Holdings 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.
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.