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Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Adveritas Limited (ASX:AV1) share price is 94% higher than it was a year ago, much better than the market return of around 18% (not including dividends) in the same period. So that should have shareholders smiling. Zooming out, the stock is actually down 45% in the last three years.
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.
See our latest analysis for Adveritas
Because Adveritas 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. 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.
Adveritas grew its revenue by 41% last year. That's a fairly respectable growth rate. Buyers pushed the share price 94% in response, which isn't unreasonable. If the company can maintain the revenue growth, the share price could go higher still. But before deciding this growth stock is underappreciated, you might want to check out profitability trends (and cash flow)
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
It's good to see that Adveritas has rewarded shareholders with a total shareholder return of 94% in the last twelve months. Notably the five-year annualised TSR loss of 7% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Adveritas (of which 3 don't sit too well with us!) you should know about.