For many, the main goal of investing in the stock market is to achieve spectacular returns. And the highest quality companies can see their stock prices soar. For example the Software Circle plc (LON:SFT) The share price is up a whopping 495% over the past half decade, a nice return for long-term holders. This just shows the value creation that some companies can achieve.
So let’s take a look at the underlying fundamentals over the past five years and see whether they have kept pace with shareholder returns.
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Software Circle isn’t currently profitable, so most analysts look at revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually demand strong sales growth. That’s because rapid revenue growth can easily be extrapolated to profit forecasts, which are often of significant size.
Over the past half decade, Software Circle has achieved revenue growth of 19% per year. That’s well above most pre-profit companies. This is undoubtedly clearly reflected in the strong share price gain of 43% (per year) over the same period. Despite the strong run, top performers like Software Circle have been known to keep winning for decades. At first glance, this seems like a good opportunity, even though we notice that sentiment already seems very positive.
In the image below, you can see how earnings and revenue have changed over time (click on the chart to see the exact values).
We think it’s positive that insiders have made significant purchases over the past year. That said, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend closely examining historical growth trends, available here.
We’d be remiss not to mention the difference between Software Circle’s total shareholder return (TSR) and are stock price return. The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Thanks to its dividend paying history, Software Circle’s TSR of 512% over the last five years is better than the share price return.
Software Circle has achieved a TSR of 3.5% over the past twelve months. But that was less than the market average. Looking back in five years, the returns are even better: over five years they are 44% per year. This could well be a company worth keeping an eye on given the continued positive reception from the market. It’s all well and good that insiders have been buying shares, but we recommend you look here to see at what price insiders were buying shares.
