Thanks in no small measure to Vanguard founder Jack Bogle, it's easy buy a low cost index fund, which should provide the average market return. But if you pick the right individual stocks, you could make more than that. To wit, StoneCo Ltd. (NASDAQ:STNE) shares are up 70% in three years, besting the market return. More recently the stock has gained 13% in a year, which isn't too bad.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
Because StoneCo 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. When a company doesn't make profits, we'd generally hope to see good revenue growth. 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 the last three years StoneCo has grown its revenue at 17% annually. That's pretty nice growth. While the share price has done well, compounding at 19% yearly, over three years, that move doesn't seem over the top. Of course, valuation is quite sensitive to the rate of growth. Of course, it's always worth considering funding risks when a company isn't profitable.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
StoneCo is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling StoneCo stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
It's nice to see that StoneCo shareholders have received a total shareholder return of 13% over the last year. That certainly beats the loss of about 10% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand StoneCo better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for StoneCo you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
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.