American Vanguard's (NYSE:AVD) earnings growth rate lags the 12% CAGR delivered to shareholders
American Vanguard Corporation (NYSE:AVD) shareholders might be concerned after seeing the share price drop 22% in the last month. But at least the stock is up over the last three years. However, it's unlikely many shareholders are elated with the share price gain of 37% over that time, given the rising market.
While the stock has fallen 9.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
See our latest analysis for American Vanguard
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.
American Vanguard was able to grow its EPS at 23% per year over three years, sending the share price higher. This EPS growth is higher than the 11% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on American Vanguard's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
American Vanguard shareholders are down 28% for the year (even including dividends), but the market itself is up 0.8%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. 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. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of American Vanguard by clicking this link.
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 American 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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