Recent 6.8% pullback isn't enough to hurt long-term Q2 Holdings (NYSE:QTWO) shareholders, they're still up 143% over 3 years

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the Q2 Holdings, Inc. (NYSE:QTWO) share price is 143% higher than it was three years ago. That sort of return is as solid as granite. But it's down 6.8% in the last week. However, this might be related to the overall market decline of 1.0% in a week.

Since the long term performance has been good but there's been a recent pullback of 6.8%, let's check if the fundamentals match the share price.

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While Q2 Holdings made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last 3 years Q2 Holdings saw its revenue grow at 11% per year. That's pretty nice growth. It's fair to say that the market has acknowledged the growth by pushing the share price up 35% per year. The business has made good progress on the top line, but the market is extrapolating the growth. It would be worth thinking about when profits will flow, since that milestone will attract more attention.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Q2 Holdings is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Q2 Holdings in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 16% in the last year, Q2 Holdings shareholders lost 32%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Q2 Holdings , and understanding them should be part of your investment process.

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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.