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It's nice to see the discoverIE Group plc (LON:DSCV) share price up 10% in a week. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 33% in the last three years, significantly under-performing the market.
While the last three years has been tough for discoverIE Group shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
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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 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.
Although the share price is down over three years, discoverIE Group actually managed to grow EPS by 19% per year in that time. 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). Alternatively, growth expectations may have been unreasonable in the past.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
We note that, in three years, revenue has actually grown at a 7.0% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating discoverIE Group further; while we may be missing something on this analysis, there might also be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for discoverIE Group in this interactive graph of future profit estimates.
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. In the case of discoverIE Group, it has a TSR of -29% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!