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Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Celtic plc (LON:CCP) shareholders, since the share price is down 31% in the last three years, falling well short of the market decline of around 4.8%.
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.
View our latest analysis for Celtic
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Celtic became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
We think that the revenue decline over three years, at a rate of 3.2% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Celtic has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Celtic stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
It's good to see that Celtic has rewarded shareholders with a total shareholder return of 8.8% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 3% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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 2 warning signs for Celtic (1 is a bit concerning) that you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.