It's not a secret that every investor will make bad investments, from time to time. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. We wouldn't blame Cooper-Standard Holdings Inc. (NYSE:CPS) shareholders if they were still in shock after the stock dropped like a lead balloon, down 75% in just one year. A loss like this is a stark reminder that portfolio diversification is important. We note that it has not been easy for shareholders over three years, either; the share price is down 65% in that time. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
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 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).
Even though the Cooper-Standard Holdings 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. By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, last year. But looking to other metrics might better explain the share price change.
On the other hand, we're certainly perturbed by the 8.8% decline in Cooper-Standard Holdings's revenue. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.
The image below shows how earnings and revenue have 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. You can see what analysts are predicting for Cooper-Standard Holdings in this interactive graph of future profit estimates.
A Different Perspective
Investors in Cooper-Standard Holdings had a tough year, with a total loss of 75%, against a market gain of about 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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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