If you love investing in stocks you’re bound to buy some losers. But the long term shareholders of MEDNAX, Inc. (NYSE:MD) have had an unfortunate run in the last three years. So they might be feeling emotional about the 68% share price collapse, in that time. And the ride hasn’t got any smoother in recent times over the last year, with the price 55% lower in that time. Shareholders have had an even rougher run lately, with the share price down 22% in the last 90 days.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years that the share price fell, MEDNAX’s earnings per share (EPS) dropped by 12% each year. The share price decline of 32% is actually steeper than the EPS slippage. So it’s likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 8.69.
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of MEDNAX’s earnings, revenue and cash flow.
A Different Perspective
Investors in MEDNAX had a tough year, with a total loss of 55%, against a market gain of about 0.9%. 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 18% 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. 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.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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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