If You Had Bought Knight Therapeutics' (TSE:GUD) Shares Three Years Ago You Would Be Down 34%

As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Knight Therapeutics Inc. (TSE:GUD) shareholders, since the share price is down 34% in the last three years, falling well short of the market return of around 24%. And more recent buyers are having a tough time too, with a drop of 22% in the last year. Unhappily, the share price slid 2.4% in the last week.

Check out our latest analysis for Knight Therapeutics

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.

During the unfortunate three years of share price decline, Knight Therapeutics actually saw its earnings per share (EPS) improve by 17% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 109% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Knight Therapeutics further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

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. If you are thinking of buying or selling Knight Therapeutics stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Investors in Knight Therapeutics had a tough year, with a total loss of 22%, against a market gain of about 17%. 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 5% per year over five years. We realise that Baron Rothschild 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 business. It's always interesting to track share price performance over the longer term. But to understand Knight Therapeutics better, we need to consider many other factors. Take risks, for example - Knight Therapeutics has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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 CA 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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