The past one-year earnings decline for Northern Technologies International (NASDAQ:NTIC) likely explains shareholders long-term losses

Northern Technologies International Corporation (NASDAQ:NTIC) shareholders should be happy to see the share price up 17% in the last month. But that is minimal compensation for the share price under-performance over the last year. After all, the share price is down 33% in the last year, significantly under-performing the market.

On a more encouraging note the company has added US$11m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Unhappily, Northern Technologies International had to report a 100% decline in EPS over the last year. Readers should not this outcome was influenced by the impact of extraordinary items on EPS. This fall in the EPS is significantly worse than the 33% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. With a P/E ratio of 4.66k, it's fair to say the market sees an EPS rebound on the cards.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on Northern Technologies International's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 18% in the last year, Northern Technologies International shareholders lost 32% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 example, we've discovered 2 warning signs for Northern Technologies International that you should be aware of before investing here.

Of course Northern Technologies International may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.