ChampionX (NASDAQ:CHX) rallies 13% this week, taking one-year gains to 29%

The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the ChampionX Corporation (NASDAQ:CHX) share price is up 29% in the last 1 year, clearly besting the market return of around 13% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Unfortunately the longer term returns are not so good, with the stock falling 27% in the last three years.

Since the stock has added US$542m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for ChampionX

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year ChampionX grew its earnings per share, moving from a loss to a profit.

We think the growth looks very prospective, so we're not surprised the market liked it too. Generally speaking the profitability inflection point is a great time to research a company closely, lest you miss an opportunity to profit.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of ChampionX's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that ChampionX shareholders have gained 29% (in total) over the last year. That certainly beats the loss of about 8% per year over three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. 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. Take risks, for example - ChampionX has 1 warning sign we think you should be aware of.

We will like ChampionX better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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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.