Despite the downward trend in earnings at Indivior (LON:INDV) the stock rallies 5.4%, bringing five-year gains to 204%

The last three months have been tough on Indivior PLC (LON:INDV) shareholders, who have seen the share price decline a rather worrying 45%. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 204% higher today. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.

Since the stock has added UK£56m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Indivior

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 five years of share price growth, Indivior moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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 Indivior's earnings, revenue and cash flow.

A Different Perspective

Investors in Indivior had a tough year, with a total loss of 56%, against a market gain of about 8.8%. 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. Longer term investors wouldn't be so upset, since they would have made 25%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Indivior is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

Indivior is not the only stock that insiders are buying. For those who like to find lesser know companies 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 British exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com