One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at 1Spatial Plc (LON:SPA), which is up 75%, over three years, soundly beating the market decline of 7.1% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 18% in the last year.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Given that 1Spatial only made minimal earnings in the last twelve months, we’ll focus on revenue to gauge its business development. Generally speaking, we’d consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
1Spatial’s revenue trended up 12% each year over three years. That’s a very respectable growth rate. The share price gain of 21% per year shows that the market is paying attention to this growth. 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).
We know that 1Spatial has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on 1Spatial’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We’re pleased to report that 1Spatial shareholders have received a total shareholder return of 18% over one year. That’s better than the annualised return of 10% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. To that end, you should be aware of the 2 warning signs we’ve spotted with 1Spatial .
But note: 1Spatial 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 GB 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.