Focusing on the three year return, this data point will tell you how the company has done over a long period of time, taking into account almost every aspect of the business. The shorter the time frame, you may be missing events or data points that the longer terms can show, which is why if you are investing, you want to look at the longer returns.
Here are a few examples of why you should utilize the three year returns when researching your next investment. First, you want to know how the company does during business cycles. Of course three years may not encompass a full business cycle, but you may get insights as to where the company excels and where it pulls back. That is important because it can lead you a buying opportunity if the stock pulls back slightly. Secondly, the longer time frame will allow you to look at seasonality of the company. An example would be anyone in the retail sector, which typically moves into the black during the holiday season. This will give you comfort when the company may be slow during one quarter, because you know its busy season is in the other quarter.
If there is a down fall to looking at the longer time frame, it would be that you may be missing the here and now in the data. You may not see an upcoming project or an acquisition in the makings that can grow the company and ultimately the stock price. When looking at this you should also take into account how the company is going to be going forward, but the potential will not be fixed into the current three year return. You could go a step further and set a projected target price based on the current information, giving you a projected return for a year or two out.
If you get stuck, reach out to an investing community and they can help to clarify the information at hand, giving you better light on the situation. Research is key and always necessary to formulate the best opinion. If you are a long term investor, utilize the three year return as that will paint a picture of what the company has done and how it reacts in certain situations.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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