The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Accolade, Inc. (NASDAQ:ACCD) shareholders over the last year, as the share price declined 14%. That falls noticeably short of the market return of around 30%. Because Accolade hasn't been listed for many years, the market is still learning about how the business performs. The share price has dropped 19% in three months.
If the past week is anything to go by, investor sentiment for Accolade isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Given that Accolade 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last twelve months, Accolade increased its revenue by 57%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 14% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Accolade is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Accolade stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While Accolade shareholders are down 14% for the year, the market itself is up 30%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's worth noting that the last three months did the real damage, with a 19% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Accolade has 3 warning signs we think you should be aware of.
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 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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