One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, Rite Aid Corporation (NYSE:RAD) shareholders have seen the share price rise 88% over three years, well in excess of the market return (43%, not including dividends).
The past week has proven to be lucrative for Rite Aid investors, so let's see if fundamentals drove the company's three-year performance.
Check out our latest analysis for Rite Aid
Given that Rite Aid 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.
Rite Aid's revenue trended up 5.2% each year over three years. Considering the company is losing money, we think that rate of revenue growth is uninspiring. The modest growth is probably broadly reflected in the share price, which is up 23%, per year over 3 years. The real question is when the business will generate profits, and how quickly they will grow. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Rite Aid
A Different Perspective
We regret to report that Rite Aid shareholders are down 33% for the year. Unfortunately, that's worse than the broader market decline of 7.6%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 - Rite Aid has 5 warning signs (and 1 which is concerning) we think you should know about.
Rite Aid is not the only stock that insiders are buying. 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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