Engenco (ASX:EGN) sheds 11% this week, as yearly returns fall more in line with earnings growth

By
Simply Wall St
Published
November 10, 2021
ASX:EGN
Source: Shutterstock

Engenco Limited (ASX:EGN) shareholders might be concerned after seeing the share price drop 11% in the last week. But that doesn't change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 236% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Ultimately business performance will determine whether the stock price continues the positive long term trend. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 17% decline over the last twelve months.

While the stock has fallen 11% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Engenco

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Engenco managed to grow its earnings per share at 40% a year. This EPS growth is higher than the 27% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
ASX:EGN Earnings Per Share Growth November 11th 2021

Dive deeper into Engenco's key metrics by checking this interactive graph of Engenco's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Engenco's TSR for the last 5 years was 288%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Engenco shareholders are down 13% for the year (even including dividends), but the market itself is up 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 31% 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. It's always interesting to track share price performance over the longer term. But to understand Engenco better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Engenco you should be aware of.

Of course Engenco 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 AU exchanges.

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