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Volatility 101: Should EDAG Engineering Group (ETR:ED4) Shares Have Dropped 41%?

Simply Wall St

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the EDAG Engineering Group AG (ETR:ED4) share price slid 41% over twelve months. That's well bellow the market return of -7.7%. At least the damage isn't so bad if you look at the last three years, since the stock is down 27% in that time. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.

Check out our latest analysis for EDAG Engineering Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate twelve months during which the EDAG Engineering Group share price fell, it actually saw its earnings per share (EPS) improve by 53%. It could be that the share price was previously over-hyped. It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.

EDAG Engineering Group's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

XTRA:ED4 Income Statement, August 10th 2019

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So it makes a lot of sense to check out what analysts think EDAG Engineering Group will earn in the future (free profit forecasts).

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for EDAG Engineering Group the TSR over the last year was -37%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

EDAG Engineering Group shareholders are down 37% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 7.7%, likely weighing on the stock. The three-year loss of 5.6% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Importantly, we haven't analysed EDAG Engineering Group's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

We will like EDAG Engineering Group 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 DE exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.