Investors one-year losses continue as Brembo (BIT:BRE) dips a further 7.1% this week, earnings continue to decline

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Brembo N.V. (BIT:BRE) have tasted that bitter downside in the last year, as the share price dropped 34%. That contrasts poorly with the market return of 16%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 16% in three years. Unfortunately the share price momentum is still quite negative, with prices down 19% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

If the past week is anything to go by, investor sentiment for Brembo isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Unhappily, Brembo had to report a 13% decline in EPS over the last year. This reduction in EPS is not as bad as the 34% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 9.54 also points to the negative market sentiment.

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. This free interactive report on Brembo's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Brembo shareholders are down 33% for the year (even including dividends), but the market itself is up 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. 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. For example, we've discovered 2 warning signs for Brembo that you should be aware of before investing here.

Brembo is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Italian 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.