As Orion Engineered Carbons (NYSE:OEC) increases 5.4% this past week, investors may now be noticing the company's three-year earnings growth

By
Simply Wall St
Published
January 18, 2022
NYSE:OEC
Source: Shutterstock

Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Orion Engineered Carbons S.A. (NYSE:OEC) shareholders, since the share price is down 30% in the last three years, falling well short of the market return of around 82%. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 9.8%.

While the stock has risen 5.4% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Orion Engineered Carbons

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, Orion Engineered Carbons actually managed to grow EPS by 5.2% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 0.4% dividend yield is unlikely to be guiding the market view of the stock. We think that the revenue decline over three years, at a rate of 8.5% per year, probably had some shareholders looking to sell. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NYSE:OEC Earnings and Revenue Growth January 18th 2022

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Orion Engineered Carbons in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Orion Engineered Carbons the TSR over the last 3 years was -27%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Orion Engineered Carbons' TSR for the year was broadly in line with the market average, at 14%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 1.4% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Take risks, for example - Orion Engineered Carbons has 2 warning signs we think you should be aware of.

Orion Engineered Carbons is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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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