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It hasn't been the best quarter for Photronics, Inc. (NASDAQ:PLAB) shareholders, since the share price has fallen 11% in that time. But in stark contrast, the returns over the last half decade have impressed. Indeed, the share price is up an impressive 124% in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 25% drop, in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Photronics managed to grow its earnings per share at 34% a year. This EPS growth is higher than the 18% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 9.35 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Photronics' key metrics by checking this interactive graph of Photronics's earnings, revenue and cash flow.
A Different Perspective
While the broader market gained around 10% in the last year, Photronics shareholders lost 25%. 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 18% per year over half a decade. 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. 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. To that end, you should learn about the 2 warning signs we've spotted with Photronics (including 1 which doesn't sit too well with us) .
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.