Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Unfortunately the Ai-Media Technologies Limited (ASX:AIM) share price slid 30% over twelve months. That falls noticeably short of the market return of around 20%. We wouldn't rush to judgement on Ai-Media Technologies because we don't have a long term history to look at. Unfortunately the share price momentum is still quite negative, with prices down 28% in thirty days.
If the past week is anything to go by, investor sentiment for Ai-Media Technologies isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
See our latest analysis for Ai-Media Technologies
Ai-Media Technologies isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year Ai-Media Technologies saw its revenue grow by 88%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 30% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Ai-Media Technologies will earn in the future (free profit forecasts).
Given that the market gained 20% in the last year, Ai-Media Technologies shareholders might be miffed that they lost 29%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 27% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Ai-Media Technologies you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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.
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