Despite lower earnings than five years ago, Encore Capital Group (NASDAQ:ECPG) investors are up 63% since then
It hasn't been the best quarter for Encore Capital Group, Inc. (NASDAQ:ECPG) shareholders, since the share price has fallen 20% in that time. But the silver lining is the stock is up over five years. Unfortunately its return of 63% is below the market return of 69%.
In light of the stock dropping 9.1% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
Check out our latest analysis for Encore Capital Group
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years of share price growth, Encore Capital Group actually saw its EPS drop 47% per year.
This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
We are not particularly impressed by the annual compound revenue growth of 2.1% over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Encore Capital Group's financial health with this free report on its balance sheet.
A Different Perspective
Investors in Encore Capital Group had a tough year, with a total loss of 9.3%, against a market gain of about 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Encore Capital Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Encore Capital Group (of which 1 is concerning!) you should know about.
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 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.
