Stock Analysis

If You Had Bought Callon Petroleum's (NYSE:CPE) Shares Three Years Ago You Would Be Down 87%

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NYSE:CPE
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It is doubtless a positive to see that the Callon Petroleum Company (NYSE:CPE) share price has gained some 130% in the last three months. But the last three years have seen a terrible decline. To wit, the share price sky-dived 87% in that time. So it's about time shareholders saw some gains. Only time will tell if the company can sustain the turnaround.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

View our latest analysis for Callon Petroleum

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Over the three years that the share price declined, Callon Petroleum's earnings per share (EPS) dropped significantly, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NYSE:CPE Earnings Per Share Growth December 16th 2020

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Callon Petroleum's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 24% in the last year, Callon Petroleum shareholders lost 70%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. 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. For example, we've discovered 2 warning signs for Callon Petroleum (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing 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 US exchanges.

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