Investing can be difficult, but the profit potential of an individual stock inspires us. But when you hold the right stock for the right time frame, the rewards can be truly enormous. One of these superstars is Interlink Electronics, Inc. (NASDAQ:LINK), which has seen its stock price soar 321% in three years. Last week, the share price fell by some 2.9%.
With that in mind, it’s worth seeing whether the company’s underlying fundamentals have been driving long-term performance, or if there are any gaps.
Interlink Electronics has not been profitable for the past twelve months, we are unlikely to see a strong correlation between its stock price and earnings per share (EPS). Income is arguably our second best option. Shareholders of unprofitable companies generally expect strong revenue growth. Indeed, it is difficult to be sure that a business will be sustainable if revenue growth is negligible and it never makes a profit.
Over the past three years, Interlink Electronics has grown its revenue by 2.6% per year. It’s not a very high growth rate since it’s not making a profit. We are therefore surprised that the stock price has climbed 61% each year during this period. We’ll tip our hats to that any day, but the revenue growth isn’t particularly impressive when you compare it to other for-profit companies. Shareholders would like to be sure that the rise in the share price is sustainable.
The graph below illustrates the evolution of income and revenue over time (reveal the exact values by clicking on the image).
We are pleased to report that the CEO is compensated more modestly than most CEOs of similarly capitalized companies. It’s always worth keeping an eye on CEO compensation, but a more important question is whether the company will grow its profits over the years. This free interactive report on Interlink Electronics’ profit, turnover and cash flow is a great place to start, if you want to investigate the stock further.
A different perspective
We regret to report that Interlink Electronics shareholders are down 15% for the year. Unfortunately, this is worse than the general market decline of 8.3%. However, it could simply be that the stock price was impacted by greater market jitters. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. Longer-term investors wouldn’t be so upset, as they would have gained 1.1%, every year, over five years. It could be that the recent selloff is an opportunity, so it may be worth checking the fundamentals for signs of a long-term growth trend. While it is worth considering the various impacts that market conditions can have on the stock price, there are other, even more important factors. Like risks, for example. Every business has them, and we’ve spotted 2 warning signs for Interlink Electronics (1 of which should not be ignored!) that you should know.
If you like buying stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).
Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.
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