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78% earnings growth over 1 year has not materialized into gains for Semtech (NASDAQ:SMTC) shareholders over that period

·3 min read

Taking the occasional loss comes part and parcel with investing on the stock market. And unfortunately for Semtech Corporation (NASDAQ:SMTC) shareholders, the stock is a lot lower today than it was a year ago. The share price has slid 57% in that time. We note that it has not been easy for shareholders over three years, either; the share price is down 33% in that time. Unfortunately the share price momentum is still quite negative, with prices down 41% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

With the stock having lost 3.6% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for Semtech

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.

Even though the Semtech share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.

Semtech managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
earnings-and-revenue-growth

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. You can see what analysts are predicting for Semtech in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Semtech shareholders are down 57% for the year. Unfortunately, that's worse than the broader market decline of 16%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Semtech better, we need to consider many other factors. For instance, we've identified 1 warning sign for Semtech that you should be aware of.

For those who like to find winning investments this free list of growing 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 US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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