Century Aluminum's stock dips 12% W-o-W, yet long-term returns remain robust

Shareholders of Century Aluminum (NASDAQ:CENX) are likely to express concern regarding the recent 13 per cent decline in the company's share price over the past month. However, this recent fluctuation does not overshadow the robust performance of the business over the last five years, during which the share price has pumped up by an impressive 159 per cent. For some investors, the recent pullback may be seen as a natural correction following such a rapid ascent. Ultimately, the company's operational performance is the sole determinant of whether the stock price can maintain its positive long-term trajectory.

In light of the 12 per cent decrease in the stock over the past week, it is mandatory to examine the longer-term narrative and ascertain whether the fundamentals have underpinned the company's commendable five-year returns.

While the efficiency of the market hypothesis remains a topic of discussion, it is evident that share markets can exhibit overreactions and that investor behaviour is not always rational. A straightforward yet effective method to gauge shifts in market perception is to analyse the relationship between changes in earnings per share (EPS) and movements in share price.

Over the past five years, Century Aluminum has transitioned to profitability. The onset of profitability often serves as a critical inflexion point, signalling the potential for accelerated earnings growth, which can subsequently justify significant increases in share price.

It is noteworthy that the company’s shareholders have relished a total return of 66 per cent during the past year, beating the annualised return of 21 per cent achieved over the preceding five years. This suggests that the company has been performing well recently. Given the sustained momentum in the share price, it may be prudent for investors to conduct a more thorough analysis of the stock to avoid missing potential opportunities.

While examining long-term share price trends can provide valuable insights into business performance, it is essential to consider additional factors, including the ever-present risk associated with investments.