The main point of investing for the long term is to make money. Furthermore, you’d generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Escalade, Incorporated (NASDAQ:ESCA) share price is up 47% in the last five years, that’s less than the market return. The last year has been disappointing, with the stock price down 29% in that time.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
Check out our latest analysis for Escalade
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Escalade managed to grow its earnings per share at 11% a year. The EPS growth is more impressive than the yearly share price gain of 8% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Escalade’s key metrics by checking this interactive graph of Escalade’s earnings, revenue and cash flow.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Escalade, it has a TSR of 79% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
Escalade shareholders are down 26% for the year (even including dividends), but the market itself is up 24%. 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. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Escalade (1 is a bit concerning) that you should be aware of.
