Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in The E.W. Scripps Company (NASDAQ:SSP) have tasted that bitter downside in the last year, as the share price dropped 38%. That's well below the market decline of 17%. However, the longer term returns haven't been so bad, with the stock down 15% in the last three years. The share price has dropped 39% in three months.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unhappily, E.W. Scripps had to report a 45% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 38% decrease in the share price. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on E.W. Scripps' earnings, revenue and cash flow.
A Different Perspective
We regret to report that E.W. Scripps shareholders are down 38% for the year. Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for E.W. Scripps (1 is concerning) that you should be aware of.
E.W. Scripps 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 US exchanges.
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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.