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Alcoa (NYSE:AA) delivers shareholders solid 27% CAGR over 3 years, surging 16% in the last week alone

Alcoa Corporation (NYSE:AA) shareholders have seen the share price descend 26% over the month. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 102% in that time. After a run like that some may not be surprised to see prices moderate. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

The past week has proven to be lucrative for Alcoa investors, so let's see if fundamentals drove the company's three-year performance.

See our latest analysis for Alcoa

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 three years of share price growth, Alcoa moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We know that Alcoa 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 Alcoa stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While it's certainly disappointing to see that Alcoa shares lost 15% throughout the year, that wasn't as bad as the market loss of 21%. Given the total loss of 3% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Alcoa that you should be aware of.

Of course Alcoa may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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