Investors more bullish on Patria Investments (NASDAQ:PAX) this week as stock rallies 9.6%, despite earnings trending downwards over past year
Diversification is a key tool for dealing with stock price volatility. But if you're going to beat the market overall, you need to have individual stocks that outperform. One such company is Patria Investments Limited (NASDAQ:PAX), which saw its share price increase 19% in the last year, slightly above the market return of around 16% (not including dividends). We'll need to follow Patria Investments for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Since the stock has added US$196m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
See our latest analysis for Patria Investments
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 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.
Over the last twelve months, Patria Investments actually shrank its EPS by 30%.
Given the share price gain, we doubt the market is measuring progress with EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We haven't seen Patria Investments increase dividend payments yet, so the yield probably hasn't helped drive the share higher. It seems far more likely that the 6.9% boost to the revenue over the last year, is making the difference. Revenue growth often does precede earnings growth, so some investors might be willing to forgo profits today because they have their eyes fixed firmly on the future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Patria Investments stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Patria Investments the TSR over the last 1 year was 26%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Patria Investments shareholders should be happy with the total gain of 26% over the last twelve months, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 1.7%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). It's always interesting to track share price performance over the longer term. But to understand Patria Investments better, we need to consider many other factors. For instance, we've identified 2 warning signs for Patria Investments (1 is potentially serious) that you should be aware of.
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 American exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
