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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. That downside risk was realized by Culp, Inc. (NYSE:CULP) shareholders over the last year, as the share price declined 46%. That contrasts poorly with the market return of 0.1%. Notably, shareholders had a tough run over the longer term, too, with a drop of 39% in the last three years. Unfortunately the share price momentum is still quite negative, with prices down 17% in thirty days. We do note, however, that the broader market is down 7.1% in that period, and this may have weighed on the share price.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Even though the Culp share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past. It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
In contrast, the 5.9% drop in revenue is a real concern. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.
Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Culp
What about the Total Shareholder Return (TSR)?
We've already covered Culp's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Culp's TSR of was a loss of 45% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Investors in Culp had a tough year, with a total loss of 45% (including dividends), against a market gain of about 0.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 0.9%, each year, over five years. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Culp is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 email@example.com. 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.