PRA Group (NASDAQ:PRAA) stock falls 8.0% in past week as five-year earnings and shareholder returns continue downward trend

Statistically speaking, long term investing is a profitable endeavour. But unfortunately, some companies simply don't succeed. For example the PRA Group, Inc. (NASDAQ:PRAA) share price dropped 60% over five years. That's not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 32% in the last year. On top of that, the share price is down 8.0% in the last week.

With the stock having lost 8.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years over which the share price declined, PRA Group's earnings per share (EPS) dropped by 3.8% each year. This reduction in EPS is less than the 17% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 6.78 further reflects this reticence.

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

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. It might be well worthwhile taking a look at our free report on PRA Group's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 18% in the last year, PRA Group shareholders lost 32%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with PRA Group (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

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.