When you buy shares in a company, there is always a risk that the price drops to zero. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Aussie Broadband Limited (ASX:ABB). Its share price is already up an impressive 157% in the last twelve months. It's also good to see the share price up 76% over the last quarter. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Given that Aussie Broadband 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Aussie Broadband grew its revenue by 84% last year. That's well above most other pre-profit companies. Meanwhile, the market has paid attention, sending the share price soaring 157% in response. It's great to see strong revenue growth, but the question is whether it can be sustained. The strong share price rise indicates optimism, so there may be a better opportunity for buyers as the hype fades a bit.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Aussie Broadband shareholders should be happy with the total gain of 157% over the last twelve months. And the share price momentum remains respectable, with a gain of 76% in the last three months. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. 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. For example, we've discovered 1 warning sign for Aussie Broadband that you should be aware of before investing here.
But note: Aussie Broadband may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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