Recent 8.4% pullback isn't enough to hurt long-term Pacira BioSciences (NASDAQ:PCRX) shareholders, they're still up 54% over 5 years
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Pacira BioSciences, Inc. (NASDAQ:PCRX) shareholders have enjoyed a 54% share price rise over the last half decade, well in excess of the market return of around 33% (not including dividends).
While the stock has fallen 8.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
See our latest analysis for Pacira BioSciences
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During the five years of share price growth, Pacira BioSciences moved from a loss to profitability. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Pacira BioSciences share price is up 33% in the last three years. During the same period, EPS grew by 67% each year. This EPS growth is higher than the 10% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 60.27, the market remains optimistic.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Pacira BioSciences has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While it's certainly disappointing to see that Pacira BioSciences shares lost 3.0% throughout the year, that wasn't as bad as the market loss of 25%. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 4 warning signs for Pacira BioSciences you should be aware of, and 1 of them shouldn't be ignored.
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.
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.
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