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Diversification is a key tool for dealing with stock price volatility. Of course, in an ideal world, all your stocks would beat the market. One such company is Silicom Ltd. (NASDAQ:SILC), which saw its share price increase 36% in the last year, slightly above the market return of around 32% (not including dividends). The longer term returns have not been as good, with the stock price only 7.9% higher than it was three years ago.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
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.
Silicom was able to grow EPS by 12% in the last twelve months. This EPS growth is significantly lower than the 36% increase in the share price. This indicates that the market is now more optimistic about the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Silicom has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
A Different Perspective
Silicom's TSR for the year was broadly in line with the market average, at 36%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 0.7%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. 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. Even so, be aware that Silicom is showing 1 warning sign in our investment analysis , you should know about...
We will like Silicom 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 US exchanges.
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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