Despite the downward trend in earnings at Mercury Systems (NASDAQ:MRCY) the stock increases 3.7%, bringing five-year gains to 48%
When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Mercury Systems, Inc. (NASDAQ:MRCY) share price is up 48% in the last five years, that's less than the market return. The last year has been disappointing, with the stock price down 3.0% in that time.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
See our latest analysis for Mercury Systems
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Mercury Systems' earnings per share are down 18% per year, despite strong share price performance over five years.
Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
In contrast revenue growth of 19% per year is probably viewed as evidence that Mercury Systems is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
While it's never nice to take a loss, Mercury Systems shareholders can take comfort that their trailing twelve month loss of 3.0% wasn't as bad as the market loss of around 20%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 8% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. For example, we've discovered 3 warning signs for Mercury Systems that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
