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Ricardo plc (LON:RCDO) shareholders should be happy to see the share price up 12% in the last month. But that doesn't change the fact that the returns over the last year have been less than pleasing. After all, the share price is down 45% in the last year, significantly under-performing the market.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
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. 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 last year Ricardo saw its earnings per share drop below zero. While this may prove temporary, we'd consider it a negative, so it doesn't surprise us that the stock price is down. However, there may be an opportunity for investors if the company can recover.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Ricardo's earnings, revenue and cash flow .
A Different Perspective
Investors in Ricardo had a tough year, with a total loss of 43% (including dividends), against a market gain of about 1.1%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 2 warning signs for Ricardo you should be aware of, and 1 of them makes us a bit uncomfortable.
Ricardo is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.