First Foundation's (NYSE:FFWM) earnings trajectory could turn positive as the stock spikes 12% this past week

It's nice to see the First Foundation Inc. (NYSE:FFWM) share price up 12% in a week. But the last three years have seen a terrible decline. The share price has sunk like a leaky ship, down 75% in that time. So we're relieved for long term holders to see a bit of uplift. Only time will tell if the company can sustain the turnaround.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

Check out our latest analysis for First Foundation

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 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).

First Foundation became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

With a rather small yield of just 0.6% we doubt that the stock's share price is based on its dividend. We think that the revenue decline over three years, at a rate of 7.2% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for First Foundation in this interactive graph of future profit estimates.

A Different Perspective

First Foundation shareholders are up 11% for the year (even including dividends). But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 9% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. Case in point: We've spotted 1 warning sign for First Foundation you should be aware of.

We will like First Foundation better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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