Huadi International Group Co., Ltd. (NASDAQ:HUDI) shareholders should be happy to see the share price up 20% in the last quarter. But that is meagre solace when you consider how the price has plummeted over the last year. Indeed, the share price is down a whopping 80% in the last year. It’s not uncommon to see a bounce after a drop like that. The bigger issue is whether the company can sustain the momentum in the long term.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Huadi International Group had to report a 30% decline in EPS over the last year. The share price decline of 80% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Given that the market gained 1.0% in the last year, Huadi International Group shareholders might be miffed that they lost 80%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. It’s great to see a nice little 20% rebound in the last three months. Let’s just hope this isn’t the widely-feared ‘dead cat bounce’ (which would indicate further declines to come). 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 – Huadi International Group has 5 warning signs (and 2 which are a bit concerning) we think you should know about.
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 American 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.
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