Vera Bradley, Inc. (NASDAQ:VRA) shareholders should be happy to see the share price up 23% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 50%, which falls well short of the return you could get by buying an index fund.
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).
Looking back five years, both Vera Bradley's share price and EPS declined; the latter at a rate of 18% per year. This fall in the EPS is worse than the 13% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.
You can see how EPS has changed over time in the image below.
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
While the broader market gained around 16% in the last year, Vera Bradley shareholders lost 3.0%. 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. Unfortunately, longer term shareholders are suffering worse, given the loss of 13% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
Vera Bradley is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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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