UK Markets open in 2 hrs 49 mins
  • NIKKEI 225

    28,280.36
    +311.37 (+1.11%)
     
  • HANG SENG

    18,895.51
    +298.28 (+1.60%)
     
  • CRUDE OIL

    80.42
    -0.13 (-0.16%)
     
  • GOLD FUTURES

    1,793.70
    +33.80 (+1.92%)
     
  • DOW

    34,589.77
    +737.24 (+2.18%)
     
  • BTC-GBP

    14,168.07
    +157.52 (+1.12%)
     
  • CMC Crypto 200

    406.15
    +5.45 (+1.36%)
     
  • Nasdaq

    11,468.00
    +484.22 (+4.41%)
     
  • ^FTAS

    4,139.65
    +27.35 (+0.67%)
     

Optimism for Construction Partners (NASDAQ:ROAD) has grown this past week, despite three-year decline in earnings

By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, Construction Partners, Inc. (NASDAQ:ROAD) shareholders have seen the share price rise 93% over three years, well in excess of the market return (33%, not including dividends).

Since it's been a strong week for Construction Partners shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Construction Partners

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

Over the last three years, Construction Partners failed to grow earnings per share, which fell 28% (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.

It may well be that Construction Partners revenue growth rate of 13% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Construction Partners stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While it's never nice to take a loss, Construction Partners shareholders can take comfort that their trailing twelve month loss of 9.7% wasn't as bad as the market loss of around -14%. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over three years. Given the three year returns are better than the return over the last year, it might be that the broader market has weighed on the stock recently. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Construction Partners (of which 1 makes us a bit uncomfortable!) you should know about.

Construction Partners 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.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here