Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Innospec Inc. (NASDAQ:IOSP) share price is down 34% in the last year. That's well below the market return of 16%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 15% in three years. The last week also saw the share price slip down another 5.9%.
After losing 5.9% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Unhappily, Innospec had to report a 82% decline in EPS over the last year. This fall in the EPS is significantly worse than the 34% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. Indeed, with a P/E ratio of 76.75 there is obviously some real optimism that earnings will bounce back.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Innospec's key metrics by checking this interactive graph of Innospec's earnings, revenue and cash flow.
A Different Perspective
Innospec shareholders are down 33% for the year (even including dividends), but the market itself is up 16%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. It could be that the recent sell-off is an opportunity, 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 Innospec better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Innospec you should be aware of.
Of course Innospec may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.