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Is Enghouse Systems' (TSE:ENGH) Share Price Gain Of 106% Well Earned?

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Simply Wall St
·3 min read
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Enghouse Systems Limited (TSE:ENGH) shareholders might be concerned after seeing the share price drop 12% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 106% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price.

See our latest analysis for Enghouse Systems

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Over half a decade, Enghouse Systems managed to grow its earnings per share at 25% a year. This EPS growth is higher than the 16% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

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

earnings-per-share-growth
earnings-per-share-growth

We know that Enghouse Systems has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. We note that for Enghouse Systems the TSR over the last 5 years was 122%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Enghouse Systems' TSR for the year was broadly in line with the market average, at 10%. We should note here that the five-year TSR is more impressive, at 17% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Enghouse Systems a stock worth watching. It's always interesting to track share price performance over the longer term. But to understand Enghouse Systems better, we need to consider many other factors. Even so, be aware that Enghouse Systems is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...

We will like Enghouse Systems better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

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. 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.

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