Investors can approximate the average market return by buying an index fund.But if you buy individual stocks, you can do both better or worse than that.Unfortunately the Cann Group Limited (ASX:CAN) share price slid 40% over twelve months.That contrasts poorly with the market return of 11%.We wouldn’t rush to judgement on Cann Group because we don’t have a long term history to look at.Even worse, it’s down 14% in about a month, which isn’t fun at all.Importantly, this could be a market reaction to the recently released financial results.
Cann Group isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing.When a company doesn’t make profits, we’d generally expect to see good revenue growth.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.
Cann Group grew its revenue by 2842% over the last year.That’s well above most other pre-profit companies.Given the revenue growth, the share price drop of 40% seems quite harsh. Our sympathies to shareholders who are now underwater.Prima facie, revenue growth like that should be a good thing, so it’s worth checking whether losses have stabilized.Our monkey brains haven’t evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
