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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term ArborGen Holdings Limited (NZSE:ARB) shareholders, since the share price is down 17% in the last three years, falling well short of the market decline of around 6.4%.
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.
View our latest analysis for ArborGen Holdings
ArborGen Holdings 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, ArborGen Holdings saw its revenue grow by 12% per year, compound. That's a pretty good rate of top-line growth. Shareholders have seen the share price fall at 5% per year, for three years. This implies the market had higher expectations of ArborGen Holdings. However, that's in the past now, and it's the future is more important - and the future looks brighter (based on revenue, anyway).
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling ArborGen Holdings stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market lost about 1.0% in the twelve months, ArborGen Holdings shareholders did even worse, losing 12%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with ArborGen Holdings , and understanding them should be part of your investment process.