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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. To wit, the LifeVantage Corporation (NASDAQ:LFVN) share price has flown 121% in the last three years. That sort of return is as solid as granite. On the other hand, we note it's down 9.7% in about a month.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, LifeVantage achieved compound earnings per share growth of 108% per year. The average annual share price increase of 30% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.45.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into LifeVantage's key metrics by checking this interactive graph of LifeVantage's earnings, revenue and cash flow.
A Different Perspective
LifeVantage shareholders are down 34% for the year, but the market itself is up 58%. 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 0.9% 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. Before deciding if you like the current share price, check how LifeVantage scores on these 3 valuation metrics.
But note: LifeVantage may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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