It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the OrthoPediatrics Corp. (NASDAQ:KIDS) share price has flown 175% in the last three years. Most would be happy with that. Also pleasing for shareholders was the 21% gain in the last three months.
OrthoPediatrics 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.
OrthoPediatrics' revenue trended up 16% each year over three years. That's pretty nice growth. It's fair to say that the market has acknowledged the growth by pushing the share price up 40% per year. It's hard to value pre-profit businesses, but it seems like the market has become a lot more optimistic about this one! It would be worth thinking about when profits will flow, since that milestone will attract more attention.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free report showing analyst forecasts should help you form a view on OrthoPediatrics
A Different Perspective
OrthoPediatrics shareholders are up 24% for the year. While you don't go broke making a profit, this return was actually lower than the average market return of about 61%. At least the longer term returns (running at about 40% a year, are better. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. It's always interesting to track share price performance over the longer term. But to understand OrthoPediatrics better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for OrthoPediatrics you should be aware of.
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 US exchanges.
This article by Simply Wall St is general in nature. 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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