The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Pentamaster International Limited (HKG:1665) shareholders over the last year, as the share price declined 12%. That contrasts poorly with the market return of 7.6%. Pentamaster International may have better days ahead, of course; we've only looked at a one year period. In the last ninety days we've seen the share price slide 14%.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Unhappily, Pentamaster International had to report a 7.6% decline in EPS over the last year. This reduction in EPS is not as bad as the 12% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While Pentamaster International shareholders are down 11% for the year (even including dividends), the market itself is up 7.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn't as bad as the 14% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. 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 Pentamaster International is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...
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 HK 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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