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Passive investing in index funds can generate returns that roughly match the overall market. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Digi International Inc. (NASDAQ:DGII) share price is up 46% in the last five years, slightly above the market return. In comparison, the share price is down 8.9% in a year.
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. 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.
Over half a decade, Digi International managed to grow its earnings per share at 17% a year. The EPS growth is more impressive than the yearly share price gain of 7.9% over the same period. So it seems the market isn’t so enthusiastic about the stock these days.
We know that Digi International has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
A Different Perspective
While the broader market gained around 7.2% in the last year, Digi International shareholders lost 8.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 7.9% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Digi International in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.