It’s not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. It must have been painful to be a Metro Bank PLC (LON:MTRO) shareholder over the last year, since the stock price plummeted 93% in that time. That’d be a striking reminder about the importance of diversification. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 92%) in that time. Furthermore, it’s down 62% in about a quarter. That’s not much fun for holders.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Unhappily, Metro Bank had to report a 54% decline in EPS over the last year. The share price decline of 93% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business.
The company’s earnings per share (over time) are depicted in the image below.
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Metro Bank’s earnings, revenue and cash flow.
A Different Perspective
Metro Bank shareholders are down 93% for the year, but the broader market is up 1.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 58% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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.
Metro Bank is not the only stock that insiders are buying. 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 GB 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 firstname.lastname@example.org. 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.