The three-year decline in earnings for Balchem NASDAQ:BCPC) isn't encouraging, but shareholders are still up 98% over that period

By
Simply Wall St
Published
January 11, 2022
NasdaqGS:BCPC
Source: Shutterstock

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Balchem Corporation (NASDAQ:BCPC) share price is up 95% in the last three years, clearly besting the market return of around 77% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 22% in the last year , including dividends .

Although Balchem has shed US$329m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Balchem

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the three years of share price growth, Balchem actually saw its earnings per share (EPS) drop 2.7% per year.

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. So other metrics may hold the key to understanding what is influencing investors.

The modest 0.4% dividend yield is unlikely to be propping up the share price. It may well be that Balchem revenue growth rate of 6.1% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

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
NasdaqGS:BCPC Earnings and Revenue Growth January 11th 2022

We know that Balchem has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Balchem will earn in the future (free profit forecasts).

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Balchem, it has a TSR of 98% for the last 3 years. 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 Balchem shareholders have received a total shareholder return of 22% over one year. Of course, that includes the dividend. That's better than the annualised return of 14% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on Balchem it might be wise to click here to see if insiders have been buying or selling shares.

But note: Balchem may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.