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The past year for Eurocell (LON:ECEL) investors has not been profitable

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Eurocell plc (LON:ECEL) shareholders over the last year, as the share price declined 33%. That falls noticeably short of the market decline of around 6.1%. However, the longer term returns haven't been so bad, with the stock down 14% in the last three years. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 7.3% decline in the broader market, throughout the period.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Check out our latest analysis for Eurocell

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

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Eurocell managed to increase earnings per share from a loss to a profit, over the last 12 months.

Earnings per share growth rates aren't particularly useful for comparing with the share price, when a company has moved from loss to profit. But we may find different metrics more enlightening.

We don't see any weakness in the Eurocell's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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

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. This free report showing analyst forecasts should help you form a view on Eurocell

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Eurocell's TSR for the last 1 year was -30%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Eurocell shareholders are down 30% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 6.1%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Eurocell better, we need to consider many other factors. Take risks, for example - Eurocell has 1 warning sign we think you should be aware of.

Eurocell is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.