Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term UFP Technologies, Inc. (NASDAQ:UFPT) shareholders have enjoyed a 86% share price rise over the last half decade, well in excess of the market return of around 70% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 3.6% in the last year.
Check out our latest analysis for UFP Technologies
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, UFP Technologies managed to grow its earnings per share at 17% a year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into UFP Technologies’ key metrics by checking this interactive graph of UFP Technologies’s earnings, revenue and cash flow.
A Different Perspective
UFP Technologies provided a TSR of 3.6% over the last twelve months. But that return falls short of the market. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 13% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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 risks, for instance. Every company has them, and we’ve spotted 1 warning sign for UFP Technologies you should know about.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. 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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