While XP Inc. (NASDAQ:XP) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 17% in the last quarter. Looking on the brighter side, the stock is actually up over twelve months. However, its return of 10% does fall short of the market return of, 25%.
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 XP grew its earnings per share (EPS) by 117%. This EPS growth is significantly higher than the 10% increase in the share price. Therefore, it seems the market isn't as excited about XP as it was before. This could be an opportunity. Of course, with a P/E ratio of 56.88, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how XP has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling XP stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We're happy to report that XP are up 10% over the year. The bad news is that's no better than the average market return, which was roughly 25%. The last three months haven't been great for shareholder returns, since the share price has trailed the market by 30% in the last three months. It might be that investors are more concerned about the business lately due to some fundamental change (or else the share price simply got ahead of itself, previously). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with XP (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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