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The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Scout Security Limited (ASX:SCT) have tasted that bitter downside in the last year, as the share price dropped 45%. That falls noticeably short of the market return of around 12%. We wouldn't rush to judgement on Scout Security because we don't have a long term history to look at. Even worse, it's down 27% in about a month, which isn't fun at all.
View our latest analysis for Scout Security
Given that Scout Security 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Scout Security grew its revenue by 47% over the last year. That's a strong result which is better than most other loss making companies. The share price drop of 45% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Scout Security's earnings, revenue and cash flow.
A Different Perspective
While Scout Security shareholders are down 45% for the year, the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 15%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Scout Security by clicking this link.