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Optimism around Nanosonics (ASX:NAN) delivering new earnings growth may be shrinking as stock declines 7.1% this past week

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Nanosonics Limited (ASX:NAN) share price slid 47% over twelve months. That's well below the market decline of 6.0%. To make matters worse, the returns over three years have also been really disappointing (the share price is 47% lower than three years ago). More recently, the share price has dropped a further 21% in a month.

After losing 7.1% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Nanosonics

While Nanosonics made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Nanosonics grew its revenue by 17% over the last year. That's definitely a respectable growth rate. Meanwhile, the share price is down 47% over twelve months, which is disappointing given the progress made. You might even wonder if the share price was previously over-hyped. But if revenue keeps growing, then at a certain point the share price would likely follow.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Nanosonics

A Different Perspective

While the broader market lost about 6.0% in the twelve months, Nanosonics shareholders did even worse, losing 47%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that Nanosonics is showing 2 warning signs in our investment analysis , you should know about...

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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