Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Resideo Technologies, Inc. (NYSE:REZI) have tasted that bitter downside in the last year, as the share price dropped 35%. That's well below the market decline of 20%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 12% in three years. Even worse, it's down 20% in about a month, which isn't fun at all.
Since Resideo Technologies has shed US$161m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
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).
Even though the Resideo Technologies share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.
It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.
Resideo Technologies managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Resideo Technologies has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Resideo Technologies will earn in the future (free profit forecasts).
A Different Perspective
Resideo Technologies shareholders are down 35% for the year, falling short of the market return. The market shed around 20%, no doubt weighing on the stock price. Shareholders have lost 4% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand Resideo Technologies better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Resideo Technologies (including 1 which is potentially serious) .
We will like Resideo Technologies better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.