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Unfortunately, investing is risky - companies can and do go bankrupt. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Vermilion Energy Inc. (TSE:VET). Its share price is already up an impressive 137% in the last twelve months. Better yet, the share price has risen 6.9% in the last week. Zooming out, the stock is actually down 7.3% in the last three years.
Since the stock has added CA$273m to its market cap in the past week alone, let's see if underlying performance has been driving long-term 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 the last year Vermilion Energy grew its earnings per share (EPS) by 203%. It's fair to say that the share price gain of 137% did not keep pace with the EPS growth. So it seems like the market has cooled on Vermilion Energy, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 4.55.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Vermilion Energy's earnings, revenue and cash flow.
A Different Perspective
It's good to see that Vermilion Energy has rewarded shareholders with a total shareholder return of 138% in the last twelve months. Of course, that includes the dividend. That certainly beats the loss of about 3% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Even so, be aware that Vermilion Energy is showing 3 warning signs in our investment analysis , you should know about...
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 CA 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.