Imagine Owning Citi Trends (NASDAQ:CTRN) And Wondering If The 29% Share Price Slide Is Justified

Citi Trends, Inc. (NASDAQ:CTRN) shareholders should be happy to see the share price up 24% in the last quarter. But that doesn’t change the reality of under-performance over the last twelve months. The cold reality is that the stock has dropped 29% in one year, under-performing the market.

See our latest analysis for Citi Trends

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Unfortunately Citi Trends reported an EPS drop of 19% for the last year. This reduction in EPS is not as bad as the 29% share price fall. So it seems the market was too confident about the business, a year ago.

You can see how EPS has changed over time in the image below.

NasdaqGS:CTRN Past and Future Earnings, November 10th 2019
NasdaqGS:CTRN Past and Future Earnings, November 10th 2019

It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Citi Trends’s earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Citi Trends’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Citi Trends shareholders, and that cash payout explains why its total shareholder loss of 28%, over the last year, isn’t as bad as the share price return.

A Different Perspective

Citi Trends shareholders are down 28% for the year (even including dividends) , but the market itself is up 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 2.6% per year over five years. We realise that Buffett 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 businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.