Earnings are growing at X-FAB Silicon Foundries (EPA:XFAB) but shareholders still don't like its prospects

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by X-FAB Silicon Foundries SE (EPA:XFAB) shareholders over the last year, as the share price declined 48%. That's well below the market return of 2.7%. To make matters worse, the returns over three years have also been really disappointing (the share price is 43% lower than three years ago). Furthermore, it's down 26% in about a quarter. That's not much fun for holders.

After losing 7.6% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for X-FAB Silicon Foundries

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the unfortunate twelve months during which the X-FAB Silicon Foundries share price fell, it actually saw its earnings per share (EPS) improve by 15%. Of course, the situation might betray previous over-optimism about growth.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

X-FAB Silicon Foundries' revenue is actually up 11% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that X-FAB Silicon Foundries has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

A Different Perspective

X-FAB Silicon Foundries shareholders are down 48% for the year, but the market itself is up 2.7%. 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. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 1 warning sign for X-FAB Silicon Foundries that you should be aware of.

But note: X-FAB Silicon Foundries may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.