These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. For example, the R.E.A. Holdings plc (LON:RE.) share price is up 80% in the last 1 year, clearly besting the market return of around 18% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Zooming out, the stock is actually down 63% in the last three years.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
R.E.A. Holdings isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good 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.
Over the last twelve months, R.E.A. Holdings’ revenue grew by 26%. We respect that sort of growth, no doubt. Buyers pushed the share price 80% in response, which isn’t unreasonable. If the company can maintain the revenue growth, the share price could go higher still. But it’s crucial to check profitability and cash flow before forming a view on the future.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It’s good to see that R.E.A. Holdings has rewarded shareholders with a total shareholder return of 80% in the last twelve months. Notably the five-year annualised TSR loss of 11% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It’s always interesting to track share price performance over the longer term. But to understand R.E.A. Holdings better, we need to consider many other factors. Even so, be aware that R.E.A. Holdings is showing 2 warning signs in our investment analysis , you should know about…
If you are like me, then you will 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 GB exchanges.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.