Earnings are growing at SolarWinds (NYSE:SWI) but shareholders still don't like its prospects

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the SolarWinds Corporation (NYSE:SWI) share price is down 57% in the last year. That's disappointing when you consider the market returned 33%. Because SolarWinds hasn't been listed for many years, the market is still learning about how the business performs. Shareholders have had an even rougher run lately, with the share price down 47% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since SolarWinds has shed US$107m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for SolarWinds

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the unfortunate twelve months during which the SolarWinds share price fell, it actually saw its earnings per share (EPS) improve by 304%. It could be that the share price was previously over-hyped.

It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.

SolarWinds' revenue is actually up 6.5% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how SolarWinds has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling SolarWinds stock, you should check out this FREE detailed report on its balance sheet.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between SolarWinds' total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. SolarWinds hasn't been paying dividends, but its TSR of -13% exceeds its share price return of -57%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Given that the market gained 33% in the last year, SolarWinds shareholders might be miffed that they lost 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn't as bad as the 47% drop in the last three months. This probably signals that the business has recently disappointed shareholders - it will take time to win them back. 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. For example, we've discovered 4 warning signs for SolarWinds (2 can't be ignored!) that you should be aware of before investing here.

We will like SolarWinds better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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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.
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