NeoGenomics (NASDAQ:NEO) pulls back 6.2% this week, but still delivers shareholders enviable 35% CAGR over 5 years

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the NeoGenomics, Inc. (NASDAQ:NEO) share price is up a whopping 348% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. Unfortunately, though, the stock has dropped 6.2% over a week. But note that the broader market is down 0.5% since last week, and this may have impacted NeoGenomics' share price.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Check out our latest analysis for NeoGenomics

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During the five years of share price growth, NeoGenomics moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the NeoGenomics share price has gained 154% in three years. Meanwhile, EPS is up 65% per year. This EPS growth is higher than the 36% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 103.08.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that NeoGenomics has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling NeoGenomics stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Investors in NeoGenomics had a tough year, with a total loss of 5.1%, against a market gain of about 30%. 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. On the bright side, long term shareholders have made money, with a gain of 35% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand NeoGenomics better, we need to consider many other factors. Even so, be aware that NeoGenomics is showing 5 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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