Parsons' (NYSE:PSN) one-year decline in earnings translates into losses for shareholders

By
Simply Wall St
Published
February 20, 2022
NYSE:PSN
Source: Shutterstock

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Parsons Corporation (NYSE:PSN) share price is down 17% in the last year. That's well below the market decline of 1.4%. We wouldn't rush to judgement on Parsons because we don't have a long term history to look at.

While the last year has been tough for Parsons shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for Parsons

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Unhappily, Parsons had to report a 38% decline in EPS over the last year. This fall in the EPS is significantly worse than the 17% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. Indeed, with a P/E ratio of 59.11 there is obviously some real optimism that earnings will bounce back.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NYSE:PSN Earnings Per Share Growth February 20th 2022

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Parsons' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Given that the market gained 1.4% in the last year, Parsons shareholders might be miffed that they lost 17%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 7.6% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Parsons better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Parsons .

Parsons is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.