The five-year decline in earnings might be taking its toll on Surmodics (NASDAQ:SRDX) shareholders as stock falls 9.8% over the past week

By
Simply Wall St
Published
November 10, 2021
NasdaqGS:SRDX
Source: Shutterstock

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term Surmodics, Inc. (NASDAQ:SRDX) shareholders would be well aware of this, since the stock is up 102% in five years. On the other hand, the stock price has retraced 9.8% in the last week. However, this might be related to the overall market decline of 0.7% in a week.

Although Surmodics has shed US$77m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Surmodics

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Surmodics became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NasdaqGS:SRDX Earnings Per Share Growth November 11th 2021

It is of course excellent to see how Surmodics has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Surmodics' TSR for the year was broadly in line with the market average, at 33%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 15%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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 1 warning sign for Surmodics you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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