The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. So we wouldn't blame long term Third Point Reinsurance Ltd. (NYSE:TPRE) shareholders for doubting their decision to hold, with the stock down 20% over a half decade. The silver lining is that the stock is up 1.2% in about a week.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over five years Third Point Reinsurance's earnings per share dropped significantly, falling to a loss, with the share price also lower. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. But we would generally expect a lower price, given the situation.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
Third Point Reinsurance shareholders are up 4.7% for the year. But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 4.4% endured over half a decade. It could well be that the business is stabilizing. Before spending more time on Third Point Reinsurance it might be wise to click here to see if insiders have been buying or selling shares.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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