It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For instance the WPX Energy, Inc. (NYSE:WPX) share price is 113% higher than it was three years ago. That sort of return is as solid as granite. It’s also good to see the share price up 16% over the last quarter. But this could be related to the strong market, which is up 15% in the last three months.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.
WPX Energy became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how WPX Energy has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at WPX Energy’s financial health with this free report on its balance sheet.
A Different Perspective
While the broader market gained around 12% in the last year, WPX Energy shareholders lost 1.0%. 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. However, the loss over the last year isn’t as bad as the 6.8% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. If you would like to research WPX Energy in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.