Earnings growth of 9.4% over 5 years hasn't been enough to translate into positive returns for Vanda Pharmaceuticals (NASDAQ:VNDA) shareholders
Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Anyone who held Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) for five years would be nursing their metaphorical wounds since the share price dropped 73% in that time. We also note that the stock has performed poorly over the last year, with the share price down 45%. Unfortunately the share price momentum is still quite negative, with prices down 12% in thirty days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
With the stock having lost 10% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
See our latest analysis for Vanda Pharmaceuticals
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 unfortunate half decade during which the share price slipped, Vanda Pharmaceuticals actually saw its earnings per share (EPS) improve by 57% per year. 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 possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
Revenue is actually up 6.7% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Vanda Pharmaceuticals has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Vanda Pharmaceuticals
A Different Perspective
While the broader market gained around 12% in the last year, Vanda Pharmaceuticals shareholders lost 45%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. To that end, you should learn about the 2 warning signs we've spotted with Vanda Pharmaceuticals (including 1 which is a bit unpleasant) .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.
