Netgem's (EPA:NTG) Shareholders Are Down 49% On Their Shares

It is doubtless a positive to see that the Netgem SA (EPA:NTG) share price has gained some 36% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 49% in the last three years, falling well short of the market return.

Check out our latest analysis for Netgem

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 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.

Netgem became profitable within the last five years. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

We think that the revenue decline over three years, at a rate of 36% per year, probably had some shareholders looking to sell. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Netgem has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Netgem in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Netgem'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. Netgem's TSR of was a loss of 41% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

We're pleased to report that Netgem shareholders have received a total shareholder return of 9.3% over one year. That certainly beats the loss of about 3% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Netgem (at least 2 which are potentially serious) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

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