In order to justify the effort of picking individual stocks, it is worth striving to beat the returns of an index fund. But if you try your hand at stock picking, you may underperform the market. Unfortunately, this has been the case for longer Adtalem Global Education Inc. (NYSE:ATGE) shareholders, as the stock price has fallen 38% over the past three years, well below the market return of around 101%. The falls have accelerated recently, with the stock price falling 23% in the past three months.
Given that shareholders are down longer term, let’s take a look at the underlying fundamentals over this period and see if they have been consistent with returns.
Although the efficient markets hypothesis continues to be taught by some, it has been proven that markets are dynamic systems that are too reactive and that investors are not always rational. An imperfect but simple way to examine how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.
During the three years of declining share price, Adtalem Global Education’s earnings per share (EPS) fell 21% each year. This drop in EPS is worse than the compound annual drop of 15% in the share price. So the market may not be too concerned about the EPS figure at the moment – or it may have already priced some of the downside.
You can see below how the EPS has evolved over time (find out the exact values by clicking on the image).
It is good to see that there has been significant insider buying over the past three months. This is a positive point. On the other hand, we believe revenue and earnings trends are much more meaningful measures of the business. It might be interesting to take a look at our free Adtalem Global Education revenue, revenue and cash flow report.
A different perspective
Adtalem Global Education shareholders are down 11% on the year, but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may point to unresolved challenges, given that it was worse than the 1.7% annualized loss over the past half-decade. Generally speaking, long-term stock price weakness can be a bad sign, although contrarian investors may want to seek out the stock in hopes of a turnaround. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. To do this, you need to find out about the 4 warning signs we spotted with Adtalem Global Education (including 1 that makes us a little uncomfortable) .
There are many other companies whose insiders buy shares. You probably do do not want to miss this free list of growing companies insiders are buying.
Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.