Investors in IAA (NYSE:IAA) have unfortunately lost 16% over the last year
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 IAA, Inc. (NYSE:IAA) have tasted that bitter downside in the last year, as the share price dropped 16%. That falls noticeably short of the market return of around 21%. IAA hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. More recently, the share price has dropped a further 9.8% in a month.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
Check out our latest analysis for IAA
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 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).
During the unfortunate twelve months during which the IAA share price fell, it actually saw its earnings per share (EPS) improve by 61%. 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. So it's well worth checking out some other metrics, too.
IAA managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that IAA has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for IAA in this interactive graph of future profit estimates.
A Different Perspective
While IAA shareholders are down 16% for the year, the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 8.5% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for IAA that you should be aware of before investing here.
We will like IAA better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
