The five-year decline in earnings for Energy Recovery NASDAQ:ERII) isn't encouraging, but shareholders are still up 58% over that period
Energy Recovery, Inc. (NASDAQ:ERII) shareholders might be concerned after seeing the share price drop 24% in the last quarter. But the silver lining is the stock is up over five years. In that time, it is up 58%, which isn't bad, but is below the market return of 91%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 36% drop, in the last year.
While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
See our latest analysis for Energy Recovery
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Energy Recovery's earnings per share are down 1.7% per year, despite strong share price performance over five years.
By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
On the other hand, Energy Recovery's revenue is growing nicely, at a compound rate of 7.3% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
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. This free report showing analyst forecasts should help you form a view on Energy Recovery
A Different Perspective
Investors in Energy Recovery had a tough year, with a total loss of 36%, against a market gain of about 31%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 10% per year over half a decade. 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 Energy Recovery better, we need to consider many other factors. Even so, be aware that Energy Recovery is showing 1 warning sign in our investment analysis , you should know about...
Energy Recovery is not the only stock that insiders are buying. 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.
