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Did Infinera's (NASDAQ:INFN) Share Price Deserve to Gain 75%?

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Infinera Corporation (NASDAQ:INFN) share price is 75% higher than it was a year ago, much better than the market return of around 20% (not including dividends) in the same period. So that should have shareholders smiling. Zooming out, the stock is actually down 15% in the last three years.

See our latest analysis for Infinera

Because Infinera made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

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Infinera grew its revenue by 54% last year. That's a head and shoulders above most loss-making companies. While the share price gain of 75% over twelve months is pretty tasty, you might argue it doesn't fully reflect the strong revenue growth. If that's the case, now might be the time to take a close look at Infinera. Since we evolved from monkeys, we think in linear terms by nature. So if growth goes exponential, opportunity may exist for the enlightened.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

NasdaqGS:INFN Income Statement, February 6th 2020
NasdaqGS:INFN Income Statement, February 6th 2020

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. If you are thinking of buying or selling Infinera stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

We're pleased to report that Infinera shareholders have received a total shareholder return of 75% over one year. Notably the five-year annualised TSR loss of 15% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Infinera you should be aware of.

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 US exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.