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Thanks in no small measure to Vanguard founder Jack Bogle, it’s easy buy a low cost index fund, which should provide the average market return. But you can make better returns by buying undervalued shares. For example, the SPX FLOW, Inc. (NYSE:FLOW) share price is up 41% in the last three years, slightly above the market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 12% in the last year.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 three years of share price growth, SPX FLOW achieved compound earnings per share growth of 12% per year. This EPS growth is remarkably close to the 12% average annual increase in the share price. This observation indicates that the market’s attitude to the business hasn’t changed all that much. Rather, the share price has approximately tracked EPS growth.
Dive deeper into SPX FLOW’s key metrics by checking this interactive graph of SPX FLOW’s earnings, revenue and cash flow.
A Different Perspective
Over the last year, SPX FLOW shareholders took a loss of 12%. In contrast the market gained about 7.0%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 12% 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. Before deciding if you like the current share price, check how SPX FLOW scores on these 3 valuation metrics.
Of course SPX FLOW may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.