While it may not be enough for some shareholders, we think it is good to see the Sprout Social, Inc. (NASDAQ:SPT) share price up 13% in a single quarter. But that isn't much consolation to those who have suffered through the declines of the last year. Like an arid lake in a warming world, shareholder value has evaporated, with the share price down 53% in that time. The share price recovery is not so impressive when you consider the fall. You could argue that the sell-off was too severe.
Since Sprout Social has shed US$118m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Sprout Social isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last twelve months, Sprout Social increased its revenue by 41%. That's definitely a respectable growth rate. Meanwhile, the share price tanked 53%, suggesting the market had much higher expectations. It may well be that the business remains approximately on track, but its revenue growth has simply been delayed. To our minds it isn't enough to just look at revenue, anyway. Always consider when profits will flow.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Sprout Social is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Sprout Social shareholders are down 53% for the year, even worse than the market loss of 15%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. It's great to see a nice little 13% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand Sprout Social better, we need to consider many other factors. Take risks, for example - Sprout Social has 3 warning signs we think you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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