Investors three-year returns in Where Food Comes From (NASDAQ:WFCF) have grown faster than the company's underlying earnings growth

By
Simply Wall St
Published
February 18, 2022
NasdaqCM:WFCF
Source: Shutterstock

It might be of some concern to shareholders to see the Where Food Comes From, Inc. (NASDAQ:WFCF) share price down 23% in the last month. On the other hand the share price is higher than it was three years ago. Arguably you'd have been better off buying an index fund, because the gain of 52% in three years isn't amazing.

Since the long term performance has been good but there's been a recent pullback of 11%, let's check if the fundamentals match the share price.

Check out our latest analysis for Where Food Comes From

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During three years of share price growth, Where Food Comes From achieved compound earnings per share growth of 120% per year. This EPS growth is higher than the 15% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NasdaqCM:WFCF Earnings Per Share Growth February 18th 2022

It might be well worthwhile taking a look at our free report on Where Food Comes From's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 2.6% in the last year, Where Food Comes From shareholders lost 8.6%. 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. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. 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. Even so, be aware that Where Food Comes From is showing 3 warning signs in our investment analysis , you should know about...

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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