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It's nice to see the Laredo Petroleum, Inc. (NYSE:LPI) share price up 17% in a week. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. In fact, the share price has tumbled down a mountain to land 88% lower after that period. It's true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The fundamental business performance will ultimately determine if the turnaround can be sustained.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Laredo Petroleum 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 might give us a better handle on how its value is changing over time.
In contrast to the share price, revenue has actually increased by 9.9% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Laredo Petroleum is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Laredo Petroleum stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While the broader market gained around 8.1% in the last year, Laredo Petroleum shareholders lost 65%. 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 34% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Laredo Petroleum's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.