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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 if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term NV5 Global, Inc. (NASDAQ:NVEE) shareholders have had that experience, with the share price dropping 50% in three years, versus a market return of about 23%. And more recent buyers are having a tough time too, with a drop of 31% in the last year. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 9.2% decline in the broader market, throughout the period.
After losing 9.8% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
NV5 Global saw its EPS decline at a compound rate of 20% per year, over the last three years. The 20% average annual share price decline is remarkably close to the EPS decline. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. In this case, it seems that the EPS is guiding the share price.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into NV5 Global's key metrics by checking this interactive graph of NV5 Global's earnings, revenue and cash flow .
A Different Perspective
Investors in NV5 Global had a tough year, with a total loss of 31%, against a market gain of about 5.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that NV5 Global is showing 2 warning signs in our investment analysis , you should know about...