Investing in Babcock & Wilcox Enterprises (NYSE:BW) three years ago would have delivered you a 556% gain

Investing can be hard but the potential fo an individual stock to pay off big time inspires us. Not every pick can be a winner, but when you pick the right stock, you can win big. One such superstar is Babcock & Wilcox Enterprises, Inc. (NYSE:BW), which saw its share price soar 556% in three years. We love happy stories like this one. The company should be really proud of that performance!

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Babcock & Wilcox Enterprises

Babcock & Wilcox Enterprises isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last three years Babcock & Wilcox Enterprises has grown its revenue at 5.6% annually. Considering the company is losing money, we think that rate of revenue growth is uninspiring. Therefore, we're a little surprised to see the share price gain has been so strong, at 87% per year, compound, over three years. We'll tip our hats to that, any day, but the top-line growth isn't particularly impressive when you compare it to other pre-profit companies. The company will need to continue to execute on its business strategy to justify this rise.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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. This free report showing analyst forecasts should help you form a view on Babcock & Wilcox Enterprises

A Different Perspective

We regret to report that Babcock & Wilcox Enterprises shareholders are down 22% for the year. Unfortunately, that's worse than the broader market decline of 2.6%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. To that end, you should be aware of the 2 warning signs we've spotted with Babcock & Wilcox Enterprises .

There are plenty of other companies that have insiders buying up shares. You probably do 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 American exchanges.

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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.

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