Frontier Developments plc (LON: FDEV) Shareholders could be worried after seeing the stock price drop 28% in the last quarter. But over five years, the returns have been remarkably good. Indeed, the share price rose by 503% during this period. So some shareholders may take profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price. Unfortunately, not all shareholders will have held it for the long term, so think about those caught in the 42% drop over the past twelve months. We are really delighted to see such a performance of the stock price for investors.
So let’s take a look and see if the long-term performance of the business has been in line with the progress of the underlying business.
Check out our latest review for Frontier Developments
To paraphrase Benjamin Graham: In the short term the market is a voting machine, but in the long term it is a weighing machine. An imperfect but simple way to examine how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.
Over the five years of stock price growth, Frontier Developments has achieved compound earnings per share (EPS) growth of 67% per year. This EPS growth is greater than the average annual increase of 43% in the share price. One could therefore conclude that the market at large has become more cautious towards the stock.
The company’s earnings per share (over time) is shown in the image below (click to see exact numbers).
It’s probably worth noting that we’ve seen some significant insider buying in the past quarter, which we see as positive. That said, we believe earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.
A different perspective
Frontier Developments investors had a difficult year, with a total loss of 42%, compared to a market gain of around 15%. 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, as they would have gained 43% each year over five years. The recent sell-off may be an opportunity, so it may be worth checking the fundamentals for signs of a long-term growth trend. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we have identified 2 warning signs for Frontier Developments (1 makes us a little uncomfortable) that you should be aware of.
There are many other companies in which insiders buy shares. You probably do not want to miss it free list of growing companies that insiders are buying.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on UK stock exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.