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For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Duluth Holdings Inc. (NASDAQ:DLTH) shareholders, since the share price is down 43% in the last three years, falling well short of the market return of around 38%. And the ride hasn't got any smoother in recent times over the last year, with the price 22% lower in that time. Shareholders have had an even rougher run lately, with the share price down 38% in the last 90 days.
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.
Although the share price is down over three years, Duluth Holdings actually managed to grow EPS by 1.8% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. After considering the numbers, we'd posit that the the market had higher expectations of EPS growth, three years back. Looking to other metrics might better explain the share price change.
We note that, in three years, revenue has actually grown at a 21% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Duluth Holdings more closely, as sometimes stocks fall unfairly. This could present an opportunity.
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.
Take a more thorough look at Duluth Holdings's financial health with this free report on its balance sheet.
A Different Perspective
The last twelve months weren't great for Duluth Holdings shares, which cost holders 22%, while the market was up about 0.1%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 17% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Before spending more time on Duluth Holdings it might be wise to click here to see if insiders have been buying or selling shares.
We will like Duluth Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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 firstname.lastname@example.org. 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.