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The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Flight Centre Travel Group Limited (ASX:FLT) have tasted that bitter downside in the last year, as the share price dropped 38%. That's well below the market return of 8.8%. Even if you look out three years, the returns are still disappointing, with the share price down35% in that time. The falls have accelerated recently, with the share price down 29% in the last three months.
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 2 warning signs investors should be aware of before investing in Flight Centre Travel Group. Read for free now.
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. 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.
Unfortunately Flight Centre Travel Group reported an EPS drop of 29% for the last year. The share price decline of 38% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Flight Centre Travel Group's earnings, revenue and cash flow.
A Different Perspective
Flight Centre Travel Group shareholders are down 36% for the year (even including dividends), but the market itself is up 8.8%. 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 6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Flight Centre Travel Group better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Flight Centre Travel Group you should be aware of.