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Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) shareholders might be concerned after seeing the share price drop 15% in the last quarter. But that doesn't change the fact that the returns over the last three years have been pleasing. In fact, the company's share price bested the return of its market index in that time, posting a gain of 79%.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Vertex Pharmaceuticals
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, Vertex Pharmaceuticals actually saw its earnings per share (EPS) drop 18% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.
It could be that the revenue growth of 12% per year is viewed as evidence that Vertex Pharmaceuticals is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Vertex Pharmaceuticals is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Vertex Pharmaceuticals stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Vertex Pharmaceuticals shareholders are down 1.9% for the year, but the market itself is up 24%. 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 12%, 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. You could get a better understanding of Vertex Pharmaceuticals' growth by checking out this more detailed historical graph of earnings, revenue and cash flow.