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Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Universal Display Corporation (NASDAQ:OLED) share price is down 48% in the last year. That's well below the market decline of 20%. To make matters worse, the returns over three years have also been really disappointing (the share price is 40% lower than three years ago). The falls have accelerated recently, with the share price down 31% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 15% in the same timeframe.
If the past week is anything to go by, investor sentiment for Universal Display isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the unfortunate twelve months during which the Universal Display share price fell, it actually saw its earnings per share (EPS) improve by 24%. Of course, the situation might betray previous over-optimism about growth.
It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Given the yield is quite low, at 1.1%, we doubt the dividend can shed much light on the share price. Universal Display managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Universal Display is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Universal Display stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
While the broader market lost about 20% in the twelve months, Universal Display shareholders did even worse, losing 48% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 0.8% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 - Universal Display has 1 warning sign we think you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.