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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Emerald Holding, Inc. (NYSE:EEX) stock is up an impressive 132% over the last five years. Better yet, the share price has risen 17% in the last week. This could be related to the recent financial results, released less than a week ago -- you can catch up on the most recent data by reading our company report.
Since the stock has added US$130m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
While Emerald Holding made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
For the last half decade, Emerald Holding can boast revenue growth at a rate of 23% per year. That's well above most pre-profit companies. So it's not entirely surprising that the share price reflected this performance by increasing at a rate of 18% per year, in that time. So it seems likely that buyers have paid attention to the strong revenue growth. To our minds that makes Emerald Holding worth investigating - it may have its best days ahead.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
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. You can see what analysts are predicting for Emerald Holding in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Emerald Holding the TSR over the last 5 years was 135%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!