Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in OnTheMarket plc have tasted that bitter downside in the last year, as the share price dropped 43%. That’s well bellow the market return of 9.2%. OnTheMarket may have better days ahead. Furthermore, it’s down 33% in about a quarter. That’s not much fun for holders.
OnTheMarket isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last twelve months, OnTheMarket increased its revenue by 11%. That’s not a very high growth rate considering it doesn’t make profits. Given this fairly low revenue growth (and lack of profits), it’s not particularly surprising to see the stock down 43% in a year. It’s important not to lose sight of the fact that profitless companies must grow. So remember, if you buy a profitless company then you risk being a profitless investor.
The graphic below depicts how earnings and revenue have changed over time.
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