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Even the best stock pickers will make plenty of bad investments. Anyone who held Vecima Networks Inc. (TSE:VCM) over the last year knows what a loser feels like. The share price has slid 54% in that time. Notably, shareholders had a tough run over the longer term, too, with a drop of 43% in the last three years. The falls have accelerated recently, with the share price down 33% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
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 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).
Unhappily, Vecima Networks had to report a 44% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 54% decrease in the share price. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price has approximately tracked EPS growth.
The company's earnings per share (over time) is 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 interactive report on Vecima Networks' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Vecima Networks shareholders are down 54% for the year (even including dividends), but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 0.6%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Vecima Networks has 2 warning signs we think you should be aware of.