Despite currently being unprofitable, SGOCO Group (NASDAQ:SGOC) has delivered a 588% return to shareholders over 1 year

By
Simply Wall St
Published
September 20, 2021
NasdaqCM:TROO
Source: Shutterstock

Active investing isn't easy, but for those that do it, the aim is to find the best companies to buy, and to profit handsomely. When an investor finds a multi-bagger (a stock that goes up over 200%), it makes a big difference to their portfolio. For example, the SGOCO Group, Ltd. (NASDAQ:SGOC) share price is up a whopping 588% in the last 1 year, a handsome return in a single year. It's also good to see the share price up 151% over the last quarter. Looking back further, the stock price is 457% higher than it was three years ago. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since the long term performance has been good but there's been a recent pullback of 8.5%, let's check if the fundamentals match the share price.

View our latest analysis for SGOCO Group

SGOCO Group wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. 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.

SGOCO Group actually shrunk its revenue over the last year, with a reduction of 16%. This is in stark contrast to the splendorous stock price, which has rocketed 588% since this time a year ago. It's pretty clear the market isn't basing its valuation on fundamental metrics like revenue. To us, a gain like this looks like speculation, but there might be historical trends to back it up.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
NasdaqCM:SGOC Earnings and Revenue Growth September 21st 2021

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

It's good to see that SGOCO Group has rewarded shareholders with a total shareholder return of 588% in the last twelve months. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - SGOCO Group has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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