In This Article:
Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Equinox Gold Corp. (TSE:EQX) share price is up 36% in the last 1 year, clearly besting the market return of around 12% (not including dividends). That's a solid performance by our standards! Zooming out, the stock is actually down 3.4% in the last three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
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.
Equinox Gold went from making a loss to reporting a profit, in the last year.
When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
However the year on year revenue growth of 39% would help. We do see some companies suppress earnings in order to accelerate revenue growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Equinox Gold has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Equinox Gold will earn in the future (free profit forecasts).
A Different Perspective
It's nice to see that Equinox Gold shareholders have received a total shareholder return of 36% over the last year. That gain is better than the annual TSR over five years, which is 1.2%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - Equinox Gold has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.