Stock Analysis

Did Business Growth Power Constellium's (NYSE:CSTM) Share Price Gain of 229%?

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NYSE:CSTM
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When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Constellium SE (NYSE:CSTM) which saw its share price drive 229% higher over five years. On top of that, the share price is up 24% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 14% in 90 days).

See our latest analysis for Constellium

Given that Constellium 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

For the last half decade, Constellium can boast revenue growth at a rate of 3.6% per year. That's not a very high growth rate considering the bottom line. So we wouldn't have expected to see the share price to have lifted 27% for each year during that time, but that's what happened. Shareholders should be pretty happy with that, although interested investors might want to examine the financial data more closely to see if the gains are really justified. It may be that the market is pretty optimistic about Constellium.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
NYSE:CSTM Earnings and Revenue Growth February 8th 2021

This free interactive report on Constellium's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Constellium provided a TSR of 7.2% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 27% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Constellium (1 can't be ignored!) that you should be aware of before investing here.

Of course Constellium 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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What are the risks and opportunities for Constellium?

Constellium SE, together with its subsidiaries, engages in the design, manufacture, and sale of specialty rolled and extruded aluminum products for the packaging, aerospace, and automotive end-markets.

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Rewards

  • Trading at 45.8% below our estimate of its fair value

  • Earnings have grown 38.2% per year over the past 5 years

Risks

  • Earnings are forecast to decline by an average of 2.7% per year for the next 3 years

  • Large one-off items impacting financial results

  • Has a high level of debt

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