Explore GDS Holdings's Fair Values from the Community and select yours

When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the GDS Holdings Limited (NASDAQ:GDS) share price has soared 217% in the last 1 year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 33% gain in the last three months. The longer term returns have not been as good, with the stock price only 24% higher than it was three years ago.

Since the stock has added US$289m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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Given that GDS Holdings only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last year GDS Holdings saw its revenue grow by 8.2%. That's not a very high growth rate considering it doesn't make profits. So we wouldn't have expected the share price to rise by 217%. The business will need a lot more growth to justify that increase. We're not so sure that revenue growth is driving the market optimism about the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

GDS Holdings is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling GDS Holdings stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

It's good to see that GDS Holdings has rewarded shareholders with a total shareholder return of 217% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 9% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the 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. For instance, we've identified 2 warning signs for GDS Holdings (1 doesn't sit too well with us) that you should be aware of.

But note: GDS Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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.