For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Snap Inc. (NYSE:SNAP) shareholders have had that experience, with the share price dropping 38% in three years, versus a market return of about 32%. Even worse, it’s down 24% in about a month, which isn’t fun at all. But this could be related to poor market conditions — stocks are down 10% in the same time.
Snap isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over three years, Snap grew revenue at 41% per year. That is faster than most pre-profit companies. While its revenue increased, the share price dropped at a rate of 15% per year. That seems like an unlucky result for holders. It seems likely that actual growth fell short of shareholders’ expectations. Still, with high hopes now tempered, now might prove to be an opportunity to buy.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling
A Different Perspective
We’re pleased to report that Snap rewarded shareholders with a total shareholder return of 31% over the last year. This recent result is much better than the 15% drop suffered by shareholders each year (on average) over the last three. We’re generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. 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.
