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. That downside risk was realized by Alkermes plc (NASDAQ:ALKS) shareholders over the last year, as the share price declined 21%. That's well below the market return of 21%. The silver lining (for longer term investors) is that the stock is still 7.0% higher than it was three years ago. Furthermore, it's down 14% in about a quarter. That's not much fun for holders.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year Alkermes grew its earnings per share, moving from a loss to a profit.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. So it makes sense to check out some other factors.
Alkermes managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Alkermes is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Alkermes stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While the broader market gained around 21% in the last year, Alkermes shareholders lost 20%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Alkermes better, we need to consider many other factors. Take risks, for example - Alkermes has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.
We will like Alkermes 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.