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Investors are selling off Custom Truck One Source (NYSE:CTOS), lack of profits no doubt contribute to shareholders one-year loss

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It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Custom Truck One Source, Inc. (NYSE:CTOS) shareholders over the last year, as the share price declined 46%. That's disappointing when you consider the market declined 10%. Custom Truck One Source hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. More recently, the share price has dropped a further 26% in a month. But this could be related to poor market conditions -- stocks are down 13% in the same time.

If the past week is anything to go by, investor sentiment for Custom Truck One Source isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Custom Truck One Source

Given that Custom Truck One Source didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last year Custom Truck One Source saw its revenue grow by 286%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 46% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Custom Truck One Source in this interactive graph of future profit estimates.

A Different Perspective

Custom Truck One Source shareholders are down 46% for the year, even worse than the market loss of 10%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 26%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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 1 warning sign for Custom Truck One Source that you should be aware of.

Custom Truck One Source is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing 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 US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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