The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Covalon Technologies Ltd. (CVE:COV) share price is up 63% in the last 1 year, clearly besting the market decline of around 5.7% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 39% in the last three years.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Covalon Technologies isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over the last twelve months, Covalon Technologies' revenue grew by 189%. That's well above most other pre-profit companies. The solid 63% share price gain goes down pretty well, but it's not necessarily as good as you might expect given the top notch revenue growth. So quite frankly it could be a good time to investigate Covalon Technologies in some detail. Human beings have trouble conceptualizing (and valuing) exponential growth. Is that what we're seeing here?
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
It's nice to see that Covalon Technologies shareholders have received a total shareholder return of 63% over the last year. That's better than the annualised return of 2% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Even so, be aware that Covalon Technologies is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
Covalon Technologies is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.
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