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Falcon Minerals Corporation (NASDAQ:FLMN) shareholders will doubtless be very grateful to see the share price up 35% in the last month. But that's not enough to compensate for the decline over the last twelve months. Like an arid lake in a warming world, shareholder value has evaporated, with the share price down 55% in that time. The share price recovery is not so impressive when you consider the fall. It may be that the fall was an overreaction.
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).
Unhappily, Falcon Minerals had to report a 76% decline in EPS over the last year. This fall in the EPS is significantly worse than the 55% the share price fall. It may have been that the weak EPS was not as bad as some had feared.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Falcon Minerals' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Falcon Minerals the TSR over the last year was -51%, 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
Given that the market gained 24% in the last year, Falcon Minerals shareholders might be miffed that they lost 51% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Putting aside the last twelve months, it's good to see the share price has rebounded by 28%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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 Falcon Minerals (1 is a bit concerning) that you should be aware of.
Falcon Minerals is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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.
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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