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Investing in stocks comes with the risk that the share price will fall. Anyone who held Catena Media plc (STO:CTM) over the last year knows what a loser feels like. In that relatively short period, the share price has plunged 53%. Longer term investors have fared much better, since the share price is up 18% in three years. The falls have accelerated recently, with the share price down 12% in the last three months.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the unfortunate twelve months during which the Catena Media share price fell, it actually saw its earnings per share (EPS) improve by 24%. It’s quite possible that growth expectations may have been unreasonable in the past. It’s surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
Catena Media’s revenue is actually up 41% over the last year. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Catena Media in this interactive graph of future profit estimates.
A Different Perspective
Over the last year, Catena Media shareholders took a loss of 53%. In contrast the market gained about 8.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 5.5% per year over three years. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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 SE 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 firstname.lastname@example.org. 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.