Is Escalade's (NASDAQ:ESCA) Share Price Gain Of 146% Well Earned?

By
Simply Wall St
Published
May 25, 2021
NasdaqGM:ESCA
Source: Shutterstock

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you pick the right stock, you can make a lot more than 100%. For example, the Escalade, Incorporated (NASDAQ:ESCA) share price had more than doubled in just one year - up 146%. On top of that, the share price is up 13% in about a quarter. Looking back further, the stock price is 68% higher than it was three years ago.

View our latest analysis for Escalade

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.

Escalade was able to grow EPS by 237% in the last twelve months. This EPS growth is significantly higher than the 146% increase in the share price. So it seems like the market has cooled on Escalade, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.40.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
NasdaqGM:ESCA Earnings Per Share Growth May 26th 2021

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Escalade, it has a TSR of 154% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Escalade shareholders have received a total shareholder return of 154% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 21% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Case in point: We've spotted 1 warning sign for Escalade you should be aware of.

Escalade is not the only stock that insiders are buying. 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 US exchanges.

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