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Did Changing Sentiment Drive Evans Dixon's (ASX:ED1) Share Price Down A Worrying 59%?

Simply Wall St

This month, we saw the Evans Dixon Limited (ASX:ED1) up an impressive 31%. But that isn't much consolation to those who have suffered through the declines of the last year. Like an arid lake in a warming world, shareholder value has evaporated, with the share price down 59% in that time. So the bounce should be viewed in that context. Arguably, the fall was overdone.

View our latest analysis for Evans Dixon

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Unhappily, Evans Dixon had to report a 35% decline in EPS over the last year. This reduction in EPS is not as bad as the 59% share price fall. So it seems the market was too confident about the business, a year ago. The P/E ratio of 11.30 also points to the negative market sentiment.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

ASX:ED1 Past and Future Earnings, September 18th 2019

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Evans Dixon's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Evans Dixon's TSR for the last year was -56%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Given that the market gained 13% in the last year, Evans Dixon shareholders might be miffed that they lost 56% (even including dividends). While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 10%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Evans Dixon by clicking this link.

Evans Dixon is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 editorial-team@simplywallst.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.