Varex Imaging (NASDAQ:VREX) shareholders are up 11% this past week, but still in the red over the last three years

Varex Imaging Corporation (NASDAQ:VREX) shareholders should be happy to see the share price up 11% in the last week. Meanwhile over the last three years the stock has dropped hard. Indeed, the share price is down a tragic 60% in the last three years. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.

While the last three years has been tough for Varex Imaging shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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.

Over the three years that the share price declined, Varex Imaging's earnings per share (EPS) dropped significantly, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.

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 Varex Imaging's earnings, revenue and cash flow.

A Different Perspective

Varex Imaging shareholders are down 42% for the year, but the market itself is up 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. 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. 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 Varex Imaging (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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