Serko Limited (NZSE:SKO) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But over five years returns have been remarkably great. In fact, during that period, the share price climbed 630%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 52% decline over the last twelve months. Anyone who held for that rewarding ride would probably be keen to talk about it.
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 Serko 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last 5 years Serko saw its revenue shrink by 0.7% per year. So it's pretty surprising to see that the share price is up 49% per year. Obviously, whatever the market is excited about, it's not a track record of revenue growth. I think it's fair to say there is probably a fair bit of excitement in the price.
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
While the broader market lost about 14% in the twelve months, Serko shareholders did even worse, losing 52%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 49%, 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. 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 4 warning signs for Serko you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ exchanges.
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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.