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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the T.T. Limited (NSE:TTL) share price is up 67% in the last 5 years, clearly besting than the market return of around 41% (ignoring dividends).
Check out our latest analysis for T.T
While T.T 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. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
Over the last half decade T.T's revenue has actually been trending down at about 7.1% per year. Despite the lack of revenue growth, the stock has returned a respectable 11%, compound, over that time. It's probably worth checking other factors such as the profitability, to try to understand the share price action. It may not be reflecting the revenue.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Dividend Lost
It's important to keep in mind that we've been talking about the share price returns, which don't include dividends, while the total shareholder return does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. T.T's TSR over the last 5 years is 77%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
Investors in T.T had a tough year, with a total loss of 37%, against a market gain of about 4.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research T.T in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.