We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Westinghouse Air Brake Technologies Corporation (NYSE:WAB), share price is up over the last year, but its gain of 49% trails the market return. Zooming out, the stock is actually down 4.1% in the last three years.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 last year Westinghouse Air Brake Technologies grew its earnings per share (EPS) by 14%. The share price gain of 49% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Westinghouse Air Brake Technologies shareholders are up 50% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 0.2% endured over half a decade. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand Westinghouse Air Brake Technologies better, we need to consider many other factors. Take risks, for example - Westinghouse Air Brake Technologies has 1 warning sign we think you should be aware of.
Westinghouse Air Brake Technologies 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.
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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. 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.
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