AudioCodes' (NASDAQ:AUDC) earnings growth rate lags the 16% CAGR delivered to shareholders

AudioCodes Ltd. (NASDAQ:AUDC) shareholders might be concerned after seeing the share price drop 22% in the last quarter. On the bright side the returns have been quite good over the last half decade. Its return of 92% has certainly bested the market return! Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 44% decline over the last twelve months.

Although AudioCodes has shed US$67m 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 AudioCodes

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 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 five years of share price growth, AudioCodes achieved compound earnings per share (EPS) growth of 47% per year. The EPS growth is more impressive than the yearly share price gain of 14% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how AudioCodes 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.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of AudioCodes, it has a TSR of 108% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 7.3% in the twelve months, AudioCodes shareholders did even worse, losing 43% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 16%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand AudioCodes better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with AudioCodes .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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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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.