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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 InCity Immobilien AG (ETR:IC8) shareholders, since the share price is down 20% in the last three years, falling well short of the market decline of around 7.3%.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for InCity Immobilien
InCity Immobilien 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. 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 three years, InCity Immobilien grew revenue at 53% per year. That is faster than most pre-profit companies. The share price drop of 6% per year over three years would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on InCity Immobilien's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
InCity Immobilien shareholders are down 17% for the year, but the market itself is up 5.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.2% over the last half decade. 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. 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 1 warning sign we've spotted with InCity Immobilien .