THG Plc (LON:THG) shareholders will doubtless be very grateful to see the share price up 41% in the last quarter. But that doesn't change the reality of under-performance over the last twelve months. In fact, the price has declined 20% in a year, falling short of the returns you could get by investing in an index fund.
Since THG has shed UK£437m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Check out our latest analysis for THG
Because THG made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
THG grew its revenue by 2.7% over the last year. That's not a very high growth rate considering it doesn't make profits. Given this lacklustre revenue growth, the share price drop of 20% seems pretty appropriate. In a hot market it's easy to forget growth is the life-blood of a loss making company. But if you buy a loss making company then you could become a loss making investor.
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. This free report showing analyst forecasts should help you form a view on THG
A Different Perspective
Given that the market gained 6.4% in the last year, THG shareholders might be miffed that they lost 20%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 41% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand THG better, we need to consider many other factors. For instance, we've identified 3 warning signs for THG (1 is a bit concerning) that you should be aware of.
THG is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.