Yahoo Finance Did Compass Group's (LON:CPG) Share Price Deserve to Gain 24%?
We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. For example, the Compass Group PLC (LON:CPG), share price is up over the last year, but its gain of 24% trails the market return. The longer term returns have not been as good, with the stock price only 0.8% higher than it was three years ago.
Check out our latest analysis for Compass Group
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 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 the last year, Compass Group actually saw its earnings per share drop 89%.
This means it's unlikely the market is judging the company based on earnings growth. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
Compass Group's revenue actually dropped 20% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Compass Group
A Different Perspective
Compass Group provided a TSR of 24% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 7% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Compass Group better, we need to consider many other factors. For instance, we've identified 4 warning signs for Compass Group that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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