Sono-Tek's (NASDAQ:SOTK) earnings growth rate lags the 10% CAGR delivered to shareholders

It might be of some concern to shareholders to see the Sono-Tek Corporation (NASDAQ:SOTK) share price down 22% in the last month. But the silver lining is the stock is up over five years. Unfortunately its return of 63% is below the market return of 88%. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 32% decline over the last twelve months.

Since the long term performance has been good but there's been a recent pullback of 12%, let's check if the fundamentals match the share price.

View our latest analysis for Sono-Tek

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

Over half a decade, Sono-Tek managed to grow its earnings per share at 17% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So one could conclude that the broader market has become more cautious towards the stock. Having said that, the market is still optimistic, given the P/E ratio of 53.87.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Sono-Tek's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 23% in the last year, Sono-Tek shareholders lost 32%. 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 10% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Sono-Tek (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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