Recent 4.7% pullback isn't enough to hurt long-term Sprout Social (NASDAQ:SPT) shareholders, they're still up 63% over 5 years

Sprout Social, Inc. (NASDAQ:SPT) shareholders might be concerned after seeing the share price drop 10% in the last month. But the silver lining is the stock is up over five years. Unfortunately its return of 63% is below the market return of 87%. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 49% decline over the last twelve months.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

See our latest analysis for Sprout Social

Because Sprout Social 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. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 5 years Sprout Social saw its revenue grow at 28% per year. That's well above most pre-profit companies. While long-term shareholders have made money, the 10% per year gain over five years fall short of the market return. That's surprising given the strong revenue growth. It could be that the stock was previously over-priced - but if you're looking for underappreciated growth stocks, these numbers indicate that there might be an opportunity here.

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

Sprout Social is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Sprout Social will earn in the future (free analyst consensus estimates)

A Different Perspective

While the broader market gained around 23% in the last year, Sprout Social shareholders lost 49%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 risks, for instance. Every company has them, and we've spotted 2 warning signs for Sprout Social you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.