The easiest way to take advantage of a rising market is to buy an index fund. But when you buy individual stocks, you can do either better or worse. For example the Rackspace Technology, Inc. (NASDAQ: RXT) The share price fell 27% last year. This contrasts poorly with the market return of 36%. Rackspace Technology has better days ahead of it, of course; We only looked at a period of one year. It’s down 31% in about a quarter. This could be related to recent financial results – you can check out the latest data by reading our company report.
Although last week was more reassuring for shareholders, they are still in the red last year. So let’s see if the underlying business is responsible for the decline.
With Rackspace Technology losing out over the past twelve months, we think the market is likely to be more focused on revenue and top-line growth, at least for now. Shareholders of unprofitable companies typically expect strong sales growth. This is because rapid sales growth can easily be extrapolated to projected profits, often of considerable size.
Last year Rackspace Technology saw sales grow 13%. That’s not a very high rate of growth considering it isn’t making any profits. Given that relatively modest sales growth (and lack of earnings), it’s not particularly surprising that the stock is down 27% in one year. It’s important not to lose sight of the fact that profitable businesses need to grow. So remember, if you buy a profitable company, you risk being a profitable investor.
The following graph shows how earnings and sales have developed over time (you can reveal the exact values by clicking on the image).
We like that insiders have bought stocks in the past twelve months. However, most people consider the earnings and sales growth trends to be a more meaningful guide to business. We therefore recommend checking this for free Consensus forecast report
While Rackspace Technology shareholders fell 27% over the year, the market itself grew 36%. While the goal is to get even better, it is worth remembering that even large long-term investments can sometimes underperform for a year or more. It’s worth noting that the past three months have done the real damage, with a 31% decline. So it seems like some owners have sold the stock lately – and that’s not optimistic. I find it very interesting to look at the share price as a proxy for business development over the long term. But to really gain insight, we need to consider other information as well. For example, consider the ubiquitous specter of investment risk. We have identified 4 warning signs with Rackspace technology , and understanding them should be part of your investment process.
There are many other companies that insiders buy stocks from. You probably do not want to miss that for free List of growing companies that insider buy.
Please note that the market returns reported in this article reflect the market-weighted average returns on stocks currently traded on US exchanges.
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This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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