It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Flex LNG Ltd. (OB:FLNG) have tasted that bitter downside in the last year, as the share price dropped 45%. That's disappointing when you consider the market returned 1.0%. Flex LNG hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. On top of that, the share price has dropped a further 23% in a month.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Flex LNG managed to increase earnings per share from a loss to a profit, over the last 12 months.
It's good to see it turn a profit, but we note it was reasonably close to profitability last year. Taking a look at the share price, it seems that investors were expecting better from the company. Given the improvement, though, contrarian investors might want to take a closer look.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. 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 Flex LNG's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
While Flex LNG shareholders are down 45% for the year, the market itself is up 1.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 14% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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.
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 NO exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.