If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) share price is 24% higher than it was a year ago, much better than the market return of around 9.6% (not including dividends) in the same period. That’s a solid performance by our standards! On the other hand, longer term shareholders have had a tougher run, with the stock falling 14% in three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Alexion Pharmaceuticals went from making a loss to reporting a profit, in the last year. When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
However the year on year revenue growth of 16% would help. Many businesses do go through a faze where they have to forgo some profits to drive business development, and sometimes its for the best.
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.
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Alexion Pharmaceuticals in this interactive graph of future profit estimates.
A Different Perspective
We’re pleased to report that Alexion Pharmaceuticals shareholders have received a total shareholder return of 24% over one year. That certainly beats the loss of about 3.4% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
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.
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 firstname.lastname@example.org. 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.