Is Extreme Networks’s Share Price Gain Of 187% Well Earned?

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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. To wit, the Extreme Networks, Inc. (NASDAQ:EXTR) share price has flown 187% in the last three years. Most would be happy with that. Also pleasing for shareholders was the 34% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

See our latest analysis for Extreme Networks

Extreme Networks isn’t yet profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Extreme Networks’s revenue trended up 28% each year over three years. That’s well above most other pre-profit companies. Meanwhile, the share price performance has been pretty solid at 42% compound over three years. This suggests the market has recognized the progress the business has made, at least to a significant degree. That’s not to say we think the share price is too high. In fact, it might be worth keeping an eye on this one.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

NasdaqGS:EXTR Income Statement, February 22nd 2019
NasdaqGS:EXTR Income Statement, February 22nd 2019

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

Investors in Extreme Networks had a tough year, with a total loss of 29%, against a market gain of about 3.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 7.1%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Extreme Networks is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.