In This Article:
The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But Accel Entertainment, Inc. (NYSE:ACEL) has fallen short of that second goal, with a share price rise of 18% over five years, which is below the market return. Zooming in, the stock is actually down 6.8% in the last year.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Our free stock report includes 1 warning sign investors should be aware of before investing in Accel Entertainment. Read for free now.
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 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 five years of share price growth, Accel Entertainment moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Accel Entertainment share price is up 1.9% in the last three years. In the same period, EPS is up 7.4% per year. This EPS growth is higher than the 0.6% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
Accel Entertainment shareholders are down 6.8% for the year, but the market itself is up 12%. 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%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 1 warning sign for Accel Entertainment that you should be aware of.