Investors ignore increasing losses at Ebiquity (LON:EBQ) as stock jumps 19% this past week

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Ebiquity plc (LON:EBQ) shareholders have seen the share price rise 41% over three years, well in excess of the market return (2.1%, not including dividends).

Since the stock has added UK£7.0m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Ebiquity

Ebiquity isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last three years Ebiquity has grown its revenue at 12% annually. That's pretty nice growth. While the share price has done well, compounding at 12% yearly, over three years, that move doesn't seem over the top. If that's the case, then it could be well worth while to research the growth trajectory. Of course, it's always worth considering funding risks when a company isn't profitable.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth

If you are thinking of buying or selling Ebiquity stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market gained around 0.4% in the last year, Ebiquity shareholders lost 31%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Ebiquity , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

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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.