U.S. markets open in 6 hours 6 minutes
  • S&P Futures

    4,285.75
    -12.50 (-0.29%)
     
  • Dow Futures

    33,824.00
    -49.00 (-0.14%)
     
  • Nasdaq Futures

    13,632.00
    -49.25 (-0.36%)
     
  • Russell 2000 Futures

    2,019.10
    -4.70 (-0.23%)
     
  • Crude Oil

    88.83
    -0.58 (-0.65%)
     
  • Gold

    1,793.70
    -4.40 (-0.24%)
     
  • Silver

    20.10
    -0.17 (-0.82%)
     
  • EUR/USD

    1.0137
    -0.0028 (-0.27%)
     
  • 10-Yr Bond

    2.7910
    0.0000 (0.00%)
     
  • Vix

    19.95
    +0.42 (+2.15%)
     
  • GBP/USD

    1.2009
    -0.0049 (-0.41%)
     
  • USD/JPY

    133.7720
    +0.5000 (+0.38%)
     
  • BTC-USD

    24,012.97
    -118.59 (-0.49%)
     
  • CMC Crypto 200

    569.27
    -21.49 (-3.64%)
     
  • FTSE 100

    7,540.57
    +31.42 (+0.42%)
     
  • Nikkei 225

    28,868.91
    -2.87 (-0.01%)
     

Shareholders in Emeco Holdings (ASX:EHL) are in the red if they invested three years ago

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But long term Emeco Holdings Limited (ASX:EHL) shareholders have had a particularly rough ride in the last three year. Sadly for them, the share price is down 64% in that time. And more recent buyers are having a tough time too, with a drop of 36% in the last year. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 10.0%. However, this may be a matter of broader market optimism, since stocks are up 6.3% in the same time.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Emeco Holdings

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the unfortunate three years of share price decline, Emeco Holdings actually saw its earnings per share (EPS) improve by 8.2% 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 else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 16% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Emeco Holdings more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
earnings-and-revenue-growth

Take a more thorough look at Emeco Holdings' financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Emeco Holdings, it has a TSR of -60% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 2.7% in the twelve months, Emeco Holdings shareholders did even worse, losing 35% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for Emeco Holdings that you should be aware of.

We will like Emeco Holdings 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 AU exchanges.

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

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here