It is a pleasure to report that the FARO Technologies, Inc. (NASDAQ:FARO) is up 40% in the last quarter. But that is small recompense for the exasperating returns over three years. Indeed, the share price is down a tragic 64% in the last three years. So the improvement may be a real relief to some. After all, could be that the fall was overdone.
With the stock having lost 9.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
Because FARO Technologies 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over three years, FARO Technologies grew revenue at 2.4% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. This uninspiring revenue growth has no doubt helped send the share price lower; it dropped 18% during the period. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). After all, growing a business isn't easy, and the process will not always be smooth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on FARO Technologies' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
FARO Technologies provided a TSR of 16% over the last twelve months. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 8% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. For instance, we've identified 4 warning signs for FARO Technologies (1 is significant) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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