The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Freelancer Limited (ASX:FLN) share price has soared 131% in the last three years. That sort of return is as solid as granite. Also pleasing for shareholders was the 102% gain in the last three months.
Because Freelancer 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. 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.
In the last 3 years Freelancer saw its revenue grow at 7.3% per year. Considering the company is losing money, we think that rate of revenue growth is uninspiring. In comparison, the share price rise of 32% per year over the last three years is pretty impressive. We’d need to take a closer look at the revenue and profit trends to see whether the improvements might justify that sort of increase. It seems likely that the market is pretty optimistic about Freelancer, given it is losing money.
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. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Freelancer’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
It’s good to see that Freelancer has rewarded shareholders with a total shareholder return of 123% in the last twelve months. That certainly beats the loss of about 5% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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 risks, for instance. Every company has them, and we’ve spotted 1 warning sign for Freelancer you should know about.
Freelancer is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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