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dynaCERT Inc. (TSE:DYA) shareholders should be happy to see the share price up 13% in the last month. But that can't change the reality that over the longer term (five years), the returns have been really quite dismal. In fact, the share price has declined rather badly, down some 69% in that time. So we're not so sure if the recent bounce should be celebrated. Of course, this could be the start of a turnaround.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Given that dynaCERT 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. 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 half decade, dynaCERT saw its revenue increase by 4.0% per year. That's not a very high growth rate considering it doesn't make profits. It's likely this weak growth has contributed to an annualised return of 11% for the last five years. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. However, it's possible too many in the market will ignore it, and there may be an opportunity if it starts to recover down the track.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
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 dynaCERT in this interactive graph of future profit estimates.
A Different Perspective
We're pleased to report that dynaCERT shareholders have received a total shareholder return of 21% over one year. There's no doubt those recent returns are much better than the TSR loss of 11% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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 3 warning signs with dynaCERT (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.