Earnings growth of 113% over 1 year hasn't been enough to translate into positive returns for Neo Performance Materials (TSE:NEO) shareholders

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Neo Performance Materials Inc. (TSE:NEO) shareholders over the last year, as the share price declined 39%. That's well below the market decline of 4.6%. On the other hand, the stock is actually up 3.4% over three years. Even worse, it's down 37% in about a month, which isn't fun at all.

After losing 15% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Neo Performance Materials

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Even though the Neo Performance Materials share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.

It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

Neo Performance Materials' revenue is actually up 34% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth

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. So it makes a lot of sense to check out what analysts think Neo Performance Materials will earn in the future (free profit forecasts).

A Different Perspective

Neo Performance Materials shareholders are down 37% for the year (even including dividends), falling short of the market return. The market shed around 4.6%, no doubt weighing on the stock price. Fortunately the longer term story is brighter, with total returns averaging about 4% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. It's always interesting to track share price performance over the longer term. But to understand Neo Performance Materials better, we need to consider many other factors. Case in point: We've spotted 5 warning signs for Neo Performance Materials you should be aware of, and 2 of them don't sit too well with us.

Neo Performance Materials is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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