Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Synchrony Financial (NYSE:SYF) share price is down 33% in the last year. That falls noticeably short of the market decline of around 15%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 12% in three years. Furthermore, it's down 14% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 6.7% decline in the broader market, throughout the period.
If the past week is anything to go by, investor sentiment for Synchrony Financial isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
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 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).
During the unfortunate twelve months during which the Synchrony Financial share price fell, it actually saw its earnings per share (EPS) improve by 23%. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
Synchrony Financial 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Synchrony Financial is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Synchrony Financial will earn in the future (free analyst consensus estimates)
A Different Perspective
We regret to report that Synchrony Financial shareholders are down 31% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 15%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 - Synchrony Financial has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
We will like Synchrony Financial 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.
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