While not a mind-blowing move, it is good to see that the Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) share price has gained 12% in the last three months. But that doesn’t change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 27%, which falls well short of the return you could get by buying an index fund.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the five years over which the share price declined, Alexion Pharmaceuticals’s earnings per share (EPS) dropped by 23% each year. This fall in the EPS is worse than the 6.0% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around. With a P/E ratio of 369.29, it’s fair to say the market sees a brighter future for the business.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Alexion Pharmaceuticals’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
It’s nice to see that Alexion Pharmaceuticals shareholders have received a total shareholder return of 2.4% over the last year. Notably the five-year annualised TSR loss of 6.0% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Alexion Pharmaceuticals is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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