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Imagine Owning Arch Coal (NYSE:ARCH) And Wondering If The 15% Share Price Slide Is Justified

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Arch Coal, Inc. (NYSE:ARCH) share price slid 15% over twelve months. That's well bellow the market return of 1.7%. Arch Coal may have better days ahead, of course; we've only looked at a one year period. The share price has dropped 15% in three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

See our latest analysis for Arch Coal

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.

Even though the Arch Coal 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. It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

Revenue was fairly steady year on year, which isn't usually such a bad thing. But the share price might be lower because the market expected a meaningful improvement, and got none.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NYSE:ARCH Income Statement, August 19th 2019

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think Arch Coal will earn in the future (free profit forecasts).

A Different Perspective

While Arch Coal shareholders are down 13% for the year (even including dividends), the market itself is up 1.7%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Notably, the loss over the last year isn't as bad as the 15% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. 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.

Arch Coal is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.