If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Enero Group Limited (ASX:EGG) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 71% drop in the share price over that period. And the ride hasn’t got any smoother in recent times over the last year, with the price 27% lower in that time. More recently, the share price has dropped a further 10% in a month.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Enero Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
Enero Group became profitable within the last five years. On the other hand, it reported a trailing twelve months loss, suggesting it isn’t reliably profitable. Other metrics might give us a better handle on how its value is changing over time.
We note that, in three years, revenue has actually grown at a 25% annual rate, so that doesn’t seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Enero Group more closely, as sometimes stocks fall unfairly. This could present an opportunity.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling Enero Group stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Enero Group, it has a TSR of -67% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Enero Group shareholders are down 24% for the year (even including dividends), but the market itself is up 25%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 6% 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. 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. For instance, we’ve identified 2 warning signs for Enero Group that you should be aware of.
Of course Enero Group 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 Australian 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.
