Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Clinigen Group plc (LON:CLIN) shareholders, since the share price is down 39% in the last three years, falling well short of the market return of around 13%. The falls have accelerated recently, with the share price down 29% in the last three months.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Clinigen Group's earnings per share (EPS) dropped by 5.1% each year. This reduction in EPS is slower than the 15% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. Having said that, the market is still optimistic, given the P/E ratio of 62.33.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Clinigen Group's earnings, revenue and cash flow.
A Different Perspective
Clinigen Group shareholders are down 18% for the year (even including dividends), but the market itself is up 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.6% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Clinigen Group , and understanding them should be part of your investment process.
Of course Clinigen Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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