The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Live Oak Bancshares, Inc. (NASDAQ:LOB) have tasted that bitter downside in the last year, as the share price dropped 44%. That's disappointing when you consider the market returned 10%. On the other hand, the stock is actually up 7.5% over three years. The silver lining is that the stock is up 4.6% in about a week.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Unfortunately Live Oak Bancshares reported an EPS drop of 53% for the last year. The share price fall of 44% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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 Live Oak Bancshares's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Live Oak Bancshares shareholders are down 43% for the year (even including dividends), but the broader market is up 10%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 2.9% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. 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 Live Oak Bancshares 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 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.