Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. Zooming in on an example, the Century Aluminum Company (NASDAQ:CENX) share price dropped 63% in the last half decade. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 55% in the last year. More recently, the share price has dropped a further 26% in a month.
With the stock having lost 14% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
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).
Century Aluminum became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
In contrast to the share price, revenue has actually increased by 7.5% a year in the five year 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.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Century Aluminum has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Century Aluminum stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While the broader market lost about 20% in the twelve months, Century Aluminum shareholders did even worse, losing 55%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% 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. 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. For instance, we've identified 4 warning signs for Century Aluminum that you should be aware of.
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 US 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.
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