Earnings growth of 5.2% over 3 years hasn't been enough to translate into positive returns for IDP Education (ASX:IEL) shareholders

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the last three years have been particularly tough on longer term IDP Education Limited (ASX:IEL) shareholders. So they might be feeling emotional about the 61% share price collapse, in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 48% lower in that time. Shareholders have had an even rougher run lately, with the share price down 27% in the last 90 days.

If the past week is anything to go by, investor sentiment for IDP Education isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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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 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.

During the unfortunate three years of share price decline, IDP Education actually saw its earnings per share (EPS) improve by 17% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that, in three years, revenue has actually grown at a 12% 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 IDP Education more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

IDP Education is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for IDP Education in this interactive graph of future profit estimates.

A Different Perspective

Investors in IDP Education had a tough year, with a total loss of 47% (including dividends), against a market gain of about 8.2%. 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 8% per year over five years. 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. 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 example, we've discovered 2 warning signs for IDP Education that you should be aware of before investing here.

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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.