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By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Yellow Cake plc (LON:YCA) share price is up 28% in the last three years, clearly besting the market decline of around 2.9% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 11%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last three years, Yellow Cake failed to grow earnings per share, which fell 15% (annualized).
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The revenue drop of is as underwhelming as some politicians. What's clear is that historic earnings and revenue aren't matching up with the share price action, very well. So you might have to dig deeper to get a grasp of the situation
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Yellow Cake
A Different Perspective
Over the last year Yellow Cake shareholders have received a TSR of 11%. It's always nice to make money but this return falls short of the market return which was about 20% for the year. On the bright side that gain is actually better than the average return of 9% over the last three years, implying that the company is doing better recently. If the share price is up as a result of improved business performance, then this kind of improvement may be sustained. It's always interesting to track share price performance over the longer term. But to understand Yellow Cake better, we need to consider many other factors. For example, we've discovered 1 warning sign for Yellow Cake that you should be aware of before investing here.
We will like Yellow Cake better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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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