If you buy and hold a stock for many years, you’d hope to be making a profit. But more than that, you probably want to see it rise more than the market average. But CyrusOne Inc. (NASDAQ:CONE) has fallen short of that second goal, with a share price rise of 45% over five years, which is below the market return. Meanwhile, the last twelve months saw the share price rise 1.1%.
Check out our latest analysis for CyrusOne
We don’t think that CyrusOne’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 5 years CyrusOne saw its revenue grow at 17% per year. Even measured against other revenue-focussed companies, that’s a good result. While long-term shareholders have made money, the 8% per year gain over five years fall short of the market return. You could argue the market is still pretty skeptical, given the growing revenues. It could be that the stock was previously over-priced – but if you’re looking for underappreciated growth stocks, these numbers indicate that there might be an opportunity here.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
NasdaqGS:CONE Earnings and Revenue Growth June 7th 2021
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So it makes a lot of sense to check out what analysts think CyrusOne will earn in the future (free profit forecasts).
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of CyrusOne, it has a TSR of 70% for the last 5 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
CyrusOne shareholders are up 4.0% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 11% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 5 warning signs with CyrusOne (at least 1 which doesn’t sit too well with us) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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