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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, you can make far more than 100% on a really good stock. Long term IMAX Corporation (NYSE:IMAX) shareholders would be well aware of this, since the stock is up 140% in five years. On the other hand, the stock price has retraced 4.8% in the last week. However, this might be related to the overall market decline of 5.6% in a week.
Although IMAX has shed US$69m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven 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.
During the last half decade, IMAX became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that IMAX has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on IMAX's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that IMAX has rewarded shareholders with a total shareholder return of 60% in the last twelve months. That gain is better than the annual TSR over five years, which is 19%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for IMAX you should know about.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.