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Volatility 101: Should Vanda Pharmaceuticals (NASDAQ:VNDA) Shares Have Dropped 42%?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) share price slid 42% over twelve months. That contrasts poorly with the market return of 6.6%. At least the damage isn't so bad if you look at the last three years, since the stock is down 29% in that time. On top of that, the share price has dropped a further 13% in a month.

Check out our latest analysis for Vanda Pharmaceuticals

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Vanda Pharmaceuticals stole the show with its EPS rocketing, in the last year. We don't think the growth guide to the sustainable growth rate in this case, but we do think this sort of increase is impressive. As you can imagine, the share price action therefore perturbs us. Some different data might shed some more light on the situation.

Vanda Pharmaceuticals's revenue is actually up 18% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NasdaqGM:VNDA Income Statement, October 10th 2019

We know that Vanda Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

While the broader market gained around 6.6% in the last year, Vanda Pharmaceuticals shareholders lost 42%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 3.9%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Vanda Pharmaceuticals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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.

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.