By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the EZCORP, Inc. (NASDAQ:EZPW) share price is up 61% in the last three years, clearly besting the market return of around 11% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 14%.
In light of the stock dropping 8.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
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).
During three years of share price growth, EZCORP moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that EZCORP has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on EZCORP's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
EZCORP shareholders are up 14% for the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like EZCORP better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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