Ecovyst's (NYSE:ECVT) 1.4% CAGR outpaced the company's earnings growth over the same five-year period
While it may not be enough for some shareholders, we think it is good to see the Ecovyst Inc. (NYSE:ECVT) share price up 18% in a single quarter. But over the last half decade, the stock has not performed well. In fact, the share price is down 24%, which falls well short of the return you could get by buying an index fund.
Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.
View our latest analysis for Ecovyst
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
While the share price declined over five years, Ecovyst actually managed to increase EPS by an average of 1.8% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
It could be that the revenue decline of 23% per year is viewed as evidence that Ecovyst is shrinking. This has probably encouraged some shareholders to sell down the stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Ecovyst will earn in the future (free profit forecasts).
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Ecovyst's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Ecovyst hasn't been paying dividends, but its TSR of 7.0% exceeds its share price return of -24%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
Although it hurts that Ecovyst returned a loss of 12% in the last twelve months, the broader market was actually worse, returning a loss of 14%. Longer term investors wouldn't be so upset, since they would have made 1.4%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Take risks, for example - Ecovyst has 1 warning sign we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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.
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