Colfax Corporation (NYSE:CFX) shareholders should be happy to see the share price up 22% in the last month. But that is little comfort to those holding over the last half decade, sitting on a big loss. In fact, the share price has declined rather badly, down some 54% in that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. Of course, this could be the start of a turnaround.
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.
During the five years over which the share price declined, Colfax's earnings per share (EPS) dropped by 54% each year. The share price decline of 14% per year isn't as bad as the EPS decline. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline. The high P/E ratio of 375.04 suggests that shareholders believe earnings will grow in the years ahead.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Colfax's key metrics by checking this interactive graph of Colfax's earnings, revenue and cash flow.
A Different Perspective
We regret to report that Colfax shareholders are down 22% for the year. Unfortunately, that's worse than the broader market decline of 3.2%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% 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. 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. Take risks, for example - Colfax has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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.
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