If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Ermenegildo Zegna N.V. (NYSE:ZGN) share price is up 11% in the last 1 year, clearly besting the market decline of around 15% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Ermenegildo Zegna hasn't been listed for long, so it's still not clear if it is a long term winner.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Our analysis indicates that ZGN is potentially overvalued!
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.
Over the last twelve months Ermenegildo Zegna went from profitable to unprofitable. While some may see this as temporary, we're a skeptical bunch, and so we're a little surprised to see the share price go up. We might get a clue to explain the share price move by looking to other metrics.
We doubt the modest 0.8% dividend yield is doing much to support the share price. We think that the revenue growth of 16% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Ermenegildo Zegna shareholders should be happy with the total gain of 12% over the last twelve months, including dividends. A substantial portion of that gain has come in the last three months, with the stock up 10% in that time. This suggests the company is continuing to win over new investors. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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.
Valuation is complex, but we're helping make it simple.
Find out whether Ermenegildo Zegna is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Ermenegildo Zegna N.V., together with its subsidiaries, designs, manufactures, markets, and distributes luxury menswear, footwear, leather goods, and other accessories under the Zegna and the Thom Browne brands.
Excellent balance sheet with reasonable growth potential.