These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Sprout Social, Inc. (NASDAQ:SPT) share price is up 94% in the last five years, slightly above the market return. In stark contrast, the stock price has actually fallen 44% in the last year.
Since the stock has added US$56m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Because Sprout Social made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
For the last half decade, Sprout Social can boast revenue growth at a rate of 28% per year. Even measured against other revenue-focussed companies, that's a good result. It's good to see that the stock has 14%, but not entirely surprising given revenue shows strong growth. If the strong revenue growth continues, we'd hope to see the share price to follow, in time. Opportunity lies where the market hasn't fully priced growth in the underlying business.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Sprout Social 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
While the broader market gained around 34% in the last year, Sprout Social shareholders lost 44%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 14% per year over half a decade. 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. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Sprout Social you should know about.
For those who like to find winning investments this free list of undervalued 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 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.
