The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Rackspace Technology, Inc. (NASDAQ:RXT) share price is down 27% in the last year. That contrasts poorly with the market return of 36%. Rackspace Technology may have better days ahead, of course; we've only looked at a one year period. It's down 31% in about a quarter. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Although the past week has been more reassuring for shareholders, they're still in the red over the last year, so let's see if the underlying business has been responsible for the decline.
Because Rackspace Technology made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last year Rackspace Technology saw its revenue grow by 13%. That's not a very high growth rate considering it doesn't make profits. Given this fairly low revenue growth (and lack of profits), it's not particularly surprising to see the stock down 27% in a year. It's important not to lose sight of the fact that profitless companies must grow. So remember, if you buy a profitless company then you risk being a profitless investor.
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. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
While Rackspace Technology shareholders are down 27% for the year, the market itself is up 36%. 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. It's worth noting that the last three months did the real damage, with a 31% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. 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 4 warning signs with Rackspace Technology , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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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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.
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