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Audinate Group Limited (ASX:AD8) shareholders have seen the share price descend 19% over the month. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. In three years the stock price has launched 128% higher: a great result. After a run like that some may not be surprised to see prices moderate. The thing to consider is whether the underlying business is doing well enough to support the current price.
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 Audinate Group
Audinate Group wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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.
In the last 3 years Audinate Group saw its revenue grow at 13% per year. That's a very respectable growth rate. It's fair to say that the market has acknowledged the growth by pushing the share price up 32% per year. It's hard to value pre-profit businesses, but it seems like the market has become a lot more optimistic about this one! It would be worth thinking about when profits will flow, since that milestone will attract more attention.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Audinate Group shareholders are up 7.6% for the year. While you don't go broke making a profit, this return was actually lower than the average market return of about 15%. At least the longer term returns (running at about 32% a year, are better. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. 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 1 warning sign with Audinate Group , and understanding them should be part of your investment process.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.