Imagine Owning Sogou And Wondering If The 34% Share Price Slide Is Justified

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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Sogou Inc. (NYSE:SOGO) have tasted that bitter downside in the last year, as the share price dropped 34%. That’s disappointing when you consider the market returned 3.1%. We wouldn’t rush to judgement on Sogou because we don’t have a long term history to look at.

View our latest analysis for Sogou

There is no denying that markets are sometimes efficient, but prices do not always reflect 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 unfortunate twelve months during which the Sogou share price fell, it actually saw its earnings per share (EPS) improve by 13%. It’s quite possible that growth expectations may have been unreasonable in the past. It’s surprising to see the share price fall so much, despite the improved EPS. So it’s well worth checking out some other metrics, too.

Sogou managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.

The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.

NYSE:SOGO Income Statement, February 22nd 2019
NYSE:SOGO Income Statement, February 22nd 2019

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

While Sogou shareholders are down 34% for the year, the market itself is up 3.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 0.2%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Is Sogou cheap compared to other companies? These 3 valuation measures might help you decide.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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 editorial-team@simplywallst.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.