Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Hornby PLC (LON:HRN) share price is down 21% in the last year. That's well below the market return of 5.8%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 7.9% in three years. More recently, the share price has dropped a further 19% in a month.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
We don't think that Hornby's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last twelve months, Hornby increased its revenue by 14%. That's definitely a respectable growth rate. Meanwhile, the share price is down 21% over twelve months, which is disappointing given the progress made. This implies the market was expecting better growth. However, that's in the past now, and it's the future that matters most.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Hornby's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 5.8% in the last year, Hornby shareholders lost 21%. 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 1.6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Hornby better, we need to consider many other factors. For instance, we've identified 3 warning signs for Hornby that you should be aware of.
But note: Hornby may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.