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It’s easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Unfortunately the Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) share price slid 30% over twelve months. That’s disappointing when you consider the market returned 7.0%. Longer term investors have fared much better, since the share price is up 27% in three years. Shareholders have had an even rougher run lately, with the share price down 21% in the last 90 days.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.
Vanda Pharmaceuticals managed to increase earnings per share from a loss to a profit, over the last 12 months. Earnings per share growth rates aren’t particularly useful for comparing with the share price, when a company has moved from loss to profit. So it makes sense to check out some other factors.
Vanda Pharmaceuticals’s revenue is actually up 15% over the last year. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
It is of course excellent to see how Vanda Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Vanda Pharmaceuticals shareholders are down 30% for the year, but the market itself is up 7.0%. 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 1.6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research Vanda Pharmaceuticals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Vanda Pharmaceuticals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.