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Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Emmis Communications Corporation (NASDAQ:EMMS) during the five years that saw its share price drop a whopping 71%.
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 five years Emmis Communications improved its earnings per share from a loss-making position. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining.
Arguably, the revenue drop of 9.3% a year for half a decade suggests that the company can’t grow in the long term. That could explain the weak share price.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
It’s good to see that Emmis Communications has rewarded shareholders with a total shareholder return of 12% in the last twelve months. There’s no doubt those recent returns are much better than the TSR loss of 22% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.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.