Farfetch Limited (NYSE:FTCH) shareholders might be concerned after seeing the share price drop 17% in the last quarter. In contrast the stock is up over the last three years. Arguably you'd have been better off buying an index fund, because the gain of 69% in three years isn't amazing.
While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Because Farfetch made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last three years Farfetch has grown its revenue at 48% annually. That's much better than most loss-making companies. The stock is up 19% over that time - a decent but not impressive return. We would have thought the top-line growth might have impressed buyers more. If the business can trend towards profitability and fund its growth, then the market could present an opportunity. But you might want to take a closer look at this one.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Farfetch is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
The last twelve months weren't great for Farfetch shares, which cost holders 12%, while the market was up about 31%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 19% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. For example, we've discovered 4 warning signs for Farfetch (1 is a bit concerning!) that you should be aware of before investing here.
Of course Farfetch may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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. 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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