Unfortunately, investing is risky - companies can and do go bankrupt. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Strides Pharma Science Limited (NSE:STAR). Its share price is already up an impressive 140% in the last twelve months. It's also good to see the share price up 27% over the last quarter. But this could be related to the strong market, which is up 24% in the last three months. Having said that, the longer term returns aren't so impressive, with stock gaining just 15% in three years.
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.
During the last year, Strides Pharma Science actually saw its earnings per share drop 73%.
So we don't think that investors are paying too much attention to EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We doubt the modest 0.2% dividend yield is doing much to support the share price. Strides Pharma Science's revenue actually dropped 14% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Strides Pharma Science in this interactive graph of future profit estimates.
A Different Perspective
We're pleased to report that Strides Pharma Science shareholders have received a total shareholder return of 141% over one year. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 0.5% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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. For example, we've discovered 4 warning signs for Strides Pharma Science (1 shouldn't be ignored!) that you should be aware of before investing here.
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 IN 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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