Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. So we wouldn't blame long term Incyte Corporation (NASDAQ:INCY) shareholders for doubting their decision to hold, with the stock down 40% over a half decade.
While the last five years has been tough for Incyte shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During five years of share price growth, Incyte moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
Revenue is actually up 17% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Incyte is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Incyte in this interactive graph of future profit estimates.
A Different Perspective
Although it hurts that Incyte returned a loss of 11% in the last twelve months, the broader market was actually worse, returning a loss of 19%. Given the total loss of 7% per year over five years, it seems returns have deteriorated in the last twelve months. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Incyte that you should be aware of.
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.