Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Qutoutiao Inc. (NASDAQ:QTT) share price is down 49% in the last year. That contrasts poorly with the market return of 29%. Because Qutoutiao hasn't been listed for many years, the market is still learning about how the business performs. Furthermore, it's down 25% in about a quarter. That's not much fun for holders.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Qutoutiao isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In just one year Qutoutiao saw its revenue fall by 12%. That looks pretty grim, at a glance. Shareholders have seen the share price drop 49% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Qutoutiao's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Given that the market gained 29% in the last year, Qutoutiao shareholders might be miffed that they lost 49%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 25%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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 - Qutoutiao has 4 warning signs (and 1 which is concerning) we think you should know about.
Of course Qutoutiao 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.
If you’re looking to trade Qutoutiao, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.