Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. Zooming in on an example, the Freeport-McMoRan Inc. (NYSE:FCX) share price dropped 71% in the last half decade. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 41% in the last year. The falls have accelerated recently, with the share price down 22% in the last 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.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Freeport-McMoRan 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.
Arguably, the revenue drop of 3.5% a year for half a decade suggests that the company can't grow in the long term. That could explain the weak share price.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Freeport-McMoRan is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Freeport-McMoRan in this interactive graph of future profit estimates.
A Different Perspective
Freeport-McMoRan shareholders are down 40% for the year (even including dividends), but the market itself is up 3.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 21% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on Freeport-McMoRan it might be wise to click here to see if insiders have been buying or selling shares.
But note: Freeport-McMoRan may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 email@example.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.