Despite falling AU $ 16 million last week, shareholders of Novatti Group (ASX: NOV) are still up 175% over 5 years

It hasn’t been the best quarter for Novatti Group Limited (ASX: NOV) shareholders, since the share price fell 19% during this period. But that doesn’t take away from the very good long-term returns the company generates over five years. In fact, the stock price is 167% higher today. We believe it is more important to focus on long-term returns than on short-term returns. Only time will tell if there is still too much optimism currently reflected in the share price.

Given that long-term performance has been good but there has been a recent drop of 11%, let’s check if the fundamentals match the stock price.

Consult our latest analysis for the Novatti group

The Novatti Group is currently unprofitable, so most analysts would look to revenue growth to get a feel for how fast the underlying business is growing. Generally speaking, companies with no profits are expected to increase their income every year, and at a good rate. Some companies are ready to postpone profitability to increase their revenue faster, but in this case, good revenue growth is expected.

Over the past 5 years, Novatti Group has seen its turnover increase by 37% per year. Even compared to other revenue-driven businesses, this is a good result. It is therefore not entirely surprising that the share price reflects this performance by increasing at a rate of 22% per annum, during this period. So it seems likely that buyers paid attention to the strong revenue growth. In our opinion, the Novatti Group is worth studying – it may have its best days ahead.

The image below shows how revenue and income have tracked over time (if you click on the image you can see more details).

This free The interactive report on the strength of the Novatti Group’s balance sheet is a great place to start if you want to study the stock further.

What about the Total Shareholder Return (TSR)?

Investors should note that there is a difference between the Total Shareholder Return (TSR) of the Novatti Group and the change in its share price, which we have covered above. Arguably, TSR is a more comprehensive return calculation because it takes into account the value of dividends (as if they were reinvested), as well as the hypothetical value of any discounted capital that has been offered to shareholders. Note that the TSR of Novatti Group, at 175%, is higher than its stock market return by 167%. When you consider that he did not pay a dividend, this data suggests that shareholders have benefited from a spin-off or have had the opportunity to acquire shares at an attractive price as part of an increase in capital at reduced price.

A different perspective

We are pleased to announce that the shareholders of the Novatti group have received a total shareholder return of 54% over one year. As the 1-year TSR is better than the 5-year TSR (the latter standing at 22% per year), it seems that the stock’s performance has improved in recent times. Someone with an optimistic outlook might view the recent improvement in TSR as indicating that the business itself is improving over time. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for example. Every business has them, and we’ve spotted 3 warning signs for the Novatti group (2 of which cannot be ignored!) that you should know.

Sure Novatti Group may not be the best stock to buy. So you might want to see this free collection of growth stocks.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on AU stock exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.