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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 the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Cargojet Inc. (TSE:CJT) shareholders, since the share price is down 42% in the last three years, falling well short of the market return of around 19%. Unfortunately the share price momentum is still quite negative, with prices down 21% in thirty days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
View our latest analysis for Cargojet
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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years that the share price fell, Cargojet's earnings per share (EPS) dropped by 11% each year. The share price decline of 17% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Cargojet has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
A Different Perspective
Cargojet shareholders are down 19% for the year (even including dividends), but the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 4%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Cargojet that you should be aware of.