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If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Armstrong Flooring, Inc. (NYSE:AFI) share price is 90% higher than it was a year ago, much better than the market return of around 39% (not including dividends) in the same period. So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 57% in the last three years.
Armstrong Flooring wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Armstrong Flooring actually shrunk its revenue over the last year, with a reduction of 4.5%. Despite the lack of revenue growth, the stock has returned a solid 90% the last twelve months. We can correlate the share price rise with revenue or profit growth, but it seems the market had previously expected weaker results, and sentiment around the stock is improving.
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 good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Armstrong Flooring'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 good to see that Armstrong Flooring has rewarded shareholders with a total shareholder return of 90% in the last twelve months. That certainly beats the loss of about 11% per year over the last half decade. 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Armstrong Flooring , and understanding them should be part of your investment process.
Armstrong Flooring 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.
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. 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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