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Unless you borrow money to invest, the potential losses are limited. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Semtech Corporation (NASDAQ:SMTC) share price had more than doubled in just one year - up 203%. On top of that, the share price is up 48% in about a quarter. In contrast, the longer term returns are negative, since the share price is 27% lower than it was three years ago.
While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
See our latest analysis for Semtech
Semtech 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 it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Semtech grew its revenue by 1.0% last year. That's not a very high growth rate considering it doesn't make profits. So we wouldn't have expected the share price to rise by 203%. We're happy that investors have made money, though we wonder if the increase will be sustained. We're not so sure that revenue growth is driving the market optimism about the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
It's nice to see that Semtech shareholders have received a total shareholder return of 203% over the last year. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Semtech better, we need to consider many other factors. For instance, we've identified 2 warning signs for Semtech that you should be aware of.