If you love investing in stocks you’re bound to buy some losers. Long term Ebix, Inc. (NASDAQ:EBIX) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 69% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 52% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 14% in thirty days. However, we note the price may have been impacted by the broader market, which is down 6.5% in the same time period.
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.
Ebix saw its EPS decline at a compound rate of 1.3% per year, over the last three years. This reduction in EPS is slower than the 33% annual reduction in the share price. So it’s likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 6.73.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
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. This free interactive report on Ebix’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Ebix’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Ebix’s TSR of was a loss of 69% for the 3 years. That wasn’t as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 14% in the last year, Ebix shareholders lost 52% (even including dividends). 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 3.6% over the last half decade. 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. It’s always interesting to track share price performance over the longer term. But to understand Ebix better, we need to consider many other factors. Even so, be aware that Ebix is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable…
Ebix is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. 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.
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