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Volatility 101: Should Torex Gold Resources (TSE:TXG) Shares Have Dropped 35%?

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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Torex Gold Resources Inc (TSE:TXG) shareholders, since the share price is down 35% in the last three years, falling well short of the market return of around 22%. Furthermore, it's down 24% in about a quarter. That's not much fun for holders.

Check out our latest analysis for Torex Gold Resources

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During five years of share price growth, Torex Gold Resources moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.

Revenue is actually up 24% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worht worth investigating Torex Gold Resources further; while we may be missing something on this analysis, there might also be an opportunity.

Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

TSX:TXG Income Statement, June 14th 2019
TSX:TXG Income Statement, June 14th 2019

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Torex Gold Resources stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

It's good to see that Torex Gold Resources has rewarded shareholders with a total shareholder return of 11% in the last twelve months. That certainly beats the loss of about 3.1% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

Torex Gold Resources is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.

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