Stock Analysis

Did You Participate In Any Of E & M Computing's (TLV:EMCO) Respectable 82% Return?

TASE:EMCO
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If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the E & M Computing Ltd. (TLV:EMCO) share price is up 44% in the last five years, that's less than the market return. But if you include dividends then the return is market-beating. Zooming in, the stock is up just 2.0% in the last year.

View our latest analysis for E & M Computing

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 five years of share price growth, E & M Computing actually saw its EPS drop 3.0% per year.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

There's no sign of growing dividends, which might have explained the resilient share price. But it's reasonably likely that the 11% annual compound revenue growth is considered evidence that E & M Computing has plenty of growth ahead of it. Indeed, revenue growth, rather than EPS, might be the current focus of the business.

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

earnings-and-revenue-growth
TASE:EMCO Earnings and Revenue Growth December 26th 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, E & M Computing's TSR for the last 5 years was 82%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that E & M Computing shareholders have received a total shareholder return of 6.6% over the last year. That's including the dividend. However, that falls short of the 13% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. Case in point: We've spotted 3 warning signs for E & M Computing you should be aware of, and 1 of them is a bit unpleasant.

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 IL exchanges.

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