Optimism around Quanex Building Products (NYSE:NX) delivering new earnings growth may be shrinking as stock declines 7.3% this past week

It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Quanex Building Products Corporation (NYSE:NX) shareholders over the last year, as the share price declined 29%. That's well below the market return of 23%. However, the longer term returns haven't been so bad, with the stock down 9.2% in the last three years. Even worse, it's down 26% in about a month, which isn't fun at all. 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 Quanex Building Products isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Quanex Building Products

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).

Unfortunately Quanex Building Products reported an EPS drop of 64% for the last year. The share price fall of 29% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

Quanex Building Products shareholders are down 28% for the year (even including dividends), but the market itself is up 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Quanex Building Products (of which 1 is a bit concerning!) you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap 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 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.