While not a mind-blowing move, it is good to see that the RealNetworks, Inc. (NASDAQ:RNWK) share price has gained 24% in the last three months. But that doesn't change the fact that the returns over the last half decade have been disappointing. The share price has failed to impress anyone , down a sizable 52% during that time. So we're not so sure if the recent bounce should be celebrated. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.
Given that RealNetworks 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over five years, RealNetworks grew its revenue at 8.6% per year. That's a fairly respectable growth rate. The share price, meanwhile, has fallen 9% compounded, over five years. It seems probably that the business has failed to live up to initial expectations. A pessimistic market can create opportunities.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
RealNetworks' TSR for the year was broadly in line with the market average, at 23%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 9%, which was endured over half a decade. While 'turnarounds seldom turn' there are green shoots for RealNetworks. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with RealNetworks (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
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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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