Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the SATS Ltd. (SGX:S58) share price is 40% higher than it was a year ago, much better than the market return of around 8.8% (not including dividends) in the same period. That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 17% in the last three years.
While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
We don't think that SATS' 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. It would be hard to believe in a more profitable future without growing revenues.
Over the last twelve months, SATS' revenue grew by 193%. That's well above most other pre-profit companies. While the share price gain of 40% over twelve months is pretty tasty, you might argue it doesn't fully reflect the strong revenue growth. If that's the case, now might be the time to take a close look at SATS. Human beings have trouble conceptualizing (and valuing) exponential growth. Is that what we're seeing here?
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that SATS has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling SATS stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's nice to see that SATS shareholders have received a total shareholder return of 41% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 4% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for SATS you should be aware of.
But note: SATS may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Singaporean 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.
