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Elmos Semiconductor SE (ETR:ELG) shareholders might be concerned after seeing the share price drop 23% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. It's fair to say most would be happy with 119% the gain in that time. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.
While the stock has fallen 6.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
Check out our latest analysis for Elmos Semiconductor
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 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.
Over half a decade, Elmos Semiconductor managed to grow its earnings per share at 34% a year. The EPS growth is more impressive than the yearly share price gain of 17% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.55.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Elmos Semiconductor has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Elmos Semiconductor's financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Elmos Semiconductor's TSR for the last 5 years was 137%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Elmos Semiconductor shareholders are down 4.5% for the year (even including dividends), but the market itself is up 22%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 1 warning sign for Elmos Semiconductor that you should be aware of before investing here.