Some Pacific Edge Limited (NZSE:PEB) shareholders are probably rather concerned to see the share price fall 45% over the last three months. But don't let that distract from the very nice return generated over three years. In fact, the company's share price bested the return of its market index in that time, posting a gain of 94%.
While the stock has fallen 40% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
Pacific Edge 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last 3 years Pacific Edge saw its revenue grow at 40% per year. That's well above most pre-profit companies. While the compound gain of 25% per year over three years is pretty good, you might argue it doesn't fully reflect the strong revenue growth. If that's the case, now might be the time to take a close look at Pacific Edge. If the company is trending towards profitability then it could be very interesting.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Pacific Edge stock, you should check out this FREE detailed report on its balance sheet.
What About The Total Shareholder Return (TSR)?
We've already covered Pacific Edge's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Pacific Edge hasn't been paying dividends, but its TSR of 107% exceeds its share price return of 94%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
While the broader market lost about 7.9% in the twelve months, Pacific Edge shareholders did even worse, losing 60%. 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. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Pacific Edge better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Pacific Edge (including 1 which is a bit unpleasant) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ 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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