Yahoo Finance The one-year loss for Enghouse Systems (TSE:ENGH) shareholders likely driven by its shrinking earnings
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Enghouse Systems Limited (TSE:ENGH) share price is down 46% in the last year. That contrasts poorly with the market decline of 0.4%. At least the damage isn't so bad if you look at the last three years, since the stock is down 12% in that time. Shareholders have had an even rougher run lately, with the share price down 22% in the last 90 days. But this could be related to the weak market, which is down 13% in the same period.
While the stock has risen 7.4% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Check out our latest analysis for Enghouse Systems
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Unhappily, Enghouse Systems had to report a 6.5% decline in EPS over the last year. The share price decline of 46% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Enghouse Systems' earnings, revenue and cash flow.
A Different Perspective
While the broader market lost about 0.4% in the twelve months, Enghouse Systems shareholders did even worse, losing 45% (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. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Case in point: We've spotted 2 warning signs for Enghouse Systems you should be aware of, and 1 of them is concerning.
Enghouse Systems 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 CA 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.
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