By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, inTEST Corporation (NYSEMKT:INTT) shareholders have seen the share price rise 92% over three years, well in excess of the market return (39%, not including dividends).
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
inTEST was able to grow its EPS at 18% per year over three years, sending the share price higher. In comparison, the 24% per year gain in the share price outpaces the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it did three years ago. It’s not unusual to see the market ‘re-rate’ a stock, after a few years of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that inTEST has improved its bottom line lately, but is it going to grow revenue? Check if analysts think inTEST will grow revenue in the future.
A Different Perspective
While the broader market gained around 2.6% in the last year, inTEST shareholders lost 9.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before deciding if you like the current share price, check how inTEST scores on these 3 valuation metrics.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 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.