By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, IRadimed Corporation (NASDAQ:IRMD) shareholders have seen the share price rise 67% over three years, well in excess of the market return (25%, not including dividends).
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 three years of share price growth, IRadimed achieved compound earnings per share growth of 35% per year. The average annual share price increase of 19% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 68.09, 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'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. This free interactive report on IRadimed's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in IRadimed had a tough year, with a total loss of 4.8%, against a market gain of about 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 5% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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 risks, for instance. Every company has them, and we've spotted 3 warning signs for IRadimed you should know about.
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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