Does ADVA Optical Networking's (ETR:ADV) Share Price Gain of 21% Match Its Business Performance?

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, ADVA Optical Networking SE (ETR:ADV) shareholders have seen the share price rise 21% over three years, well in excess of the market decline (5.5%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 3.3% in the last year.

View our latest analysis for ADVA Optical Networking

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.

During the three years of share price growth, ADVA Optical Networking actually saw its earnings per share (EPS) drop 2.9% per year.

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Therefore, it makes sense to look into other metrics.

It may well be that ADVA Optical Networking revenue growth rate of 5.2% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think ADVA Optical Networking will earn in the future (free profit forecasts).

A Different Perspective

ADVA Optical Networking shareholders are up 3.3% for the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 1.4% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand ADVA Optical Networking better, we need to consider many other factors. For example, we've discovered 2 warning signs for ADVA Optical Networking that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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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