Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. For example, the Komplett Bank ASA (OB:KOMP) share price return of 31% over three years lags the market return in the same period. Unfortunately, the share price has fallen 26% over twelve months.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During three years of share price growth, Komplett Bank achieved compound earnings per share growth of 184% per year. This EPS growth is higher than the 9.3% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We’d venture the lowish P/E ratio of 7.01 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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. Dive deeper into the earnings by checking this interactive graph of Komplett Bank’s earnings, revenue and cash flow.
A Different Perspective
The last twelve months weren’t great for Komplett Bank shares, which cost holders 26%, while the market was up about 8.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 9.3% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NO exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.