Guidewire Software (NYSE:GWRE) pulls back 5.3% this week, but still delivers shareholders impressive 31% CAGR over 3 years

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For instance the Guidewire Software, Inc. (NYSE:GWRE) share price is 124% higher than it was three years ago. Most would be happy with that. Unfortunately, though, the stock has dropped 5.3% over a week. But this could be related to the soft market, with stocks selling off around 4.8% in the last week.

Although Guidewire Software has shed US$925m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Guidewire Software

We don't think that Guidewire Software's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Guidewire Software's revenue trended up 10% each year over three years. That's pretty nice growth. It's fair to say that the market has acknowledged the growth by pushing the share price up 31% per year. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Guidewire Software is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

It's nice to see that Guidewire Software shareholders have received a total shareholder return of 67% over the last year. That's better than the annualised return of 16% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. To that end, you should be aware of the 1 warning sign we've spotted with Guidewire Software .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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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.