The past three years for Elanco Animal Health (NYSE:ELAN) investors has not been profitable

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the last three years have been particularly tough on longer term Elanco Animal Health Incorporated (NYSE:ELAN) shareholders. So they might be feeling emotional about the 61% share price collapse, in that time. The more recent news is of little comfort, with the share price down 34% in a year. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 6.2% in the same period.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

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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 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 five years of share price growth, Elanco Animal Health moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Elanco Animal Health shareholders are down 34% for the year, but the market itself is up 9.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for Elanco Animal Health you should be aware of, and 2 of them don't sit too well with us.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.