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. Investors in Noodles & Company (NASDAQ: NDLS) have tasted that bitter downside in the last year, as the share price dropped 49%. That’s disappointing when you consider the market declined 19%. At least the damage isn’t so bad if you look at the last three years, since the stock is down 5.5% in that time.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
Noodles aren’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.
In the last year, Noodles saw its revenue grow by 4.4%. While that may seem decent it isn’t great considering the company is still making a loss. Given this fairly low revenue growth (and lack of profits), it’s not particularly surprising to see the stock down 49% in a year. In a hot market, it’s easy to forget growth is the lifeblood of a loss-making company. So remember, if you buy a profitless company then you risk being a profitless investor.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Noodles in this interactive graph of future profit estimates.
We regret to report that Noodles shareholders are down 49% for the year. Unfortunately, that’s worse than the broader market decline of 19%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long-term shareholders have made money, with a gain of 1.2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long-term growth trend. It’s always interesting to track share price performance over the longer term. But to understand Noodles better, we need to consider many other factors. For example, we’ve discovered 1 warning sign for Noodles that you should be aware of before investing here.
Noodles is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.
