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Caesarstone Ltd. (NASDAQ:CSTE) shareholders should be happy to see the share price up 15% in the last week. But that doesn't change the fact that the returns over the last half decade have been disappointing. Indeed, the share price is down 65% in the period. Some might say the recent bounce is to be expected after such a bad drop. We'd err towards caution given the long term under-performance.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
Looking back five years, both Caesarstone's share price and EPS declined; the latter at a rate of 47% per year. The share price decline of 19% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve. With a P/E ratio of 111.71, it's fair to say the market sees a brighter future for the business.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
Caesarstone shareholders are down 28% for the year, but the market itself is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For instance, we've identified 3 warning signs for Caesarstone (1 is concerning) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
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. 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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