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Jul 31, 2023

The 17% return this week takes Ferro

Stock Analysis By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market

Stock Analysis

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Ferro-Alloy Resources Limited (LON:FAR) shareholders have seen the share price rise 32% over three years, well in excess of the market return (7.4%, not including dividends).

Since the stock has added UK£7.5m 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 Ferro-Alloy Resources

Because Ferro-Alloy Resources 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Ferro-Alloy Resources' revenue trended up 51% each year over three years. That's well above most pre-profit companies. The share price rise of 10% per year throughout that time is nice to see, and given the revenue growth, that gain seems somewhat justified. So now might be the perfect time to put Ferro-Alloy Resources on your radar. If the company is trending towards profitability then it could be very interesting.

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

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Ferro-Alloy Resources in this interactive graph of future profit estimates.

Over the last year, Ferro-Alloy Resources shareholders took a loss of 5.6%. In contrast the market gained about 5.8%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 10% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Ferro-Alloy Resources (of which 2 are potentially serious!) you should know about.

Ferro-Alloy Resources is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

Find out whether Ferro-Alloy Resources is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Ferro-Alloy Resources Limited engages in mining, processing, and selling vanadium and related by-products in the Republic of Kazakhstan.

Mediocre balance sheet with limited growth.