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Ernst Russ AG (ETR:HXCK) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been spectacular. In that time, the share price has soared some 558% higher! So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. We love happy stories like this one. The company should be really proud of that performance!
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Ernst Russ
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 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).
During five years of share price growth, Ernst Russ achieved compound earnings per share (EPS) growth of 62% per year. This EPS growth is higher than the 46% average annual increase in the share price. 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 3.13.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Ernst Russ has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Ernst Russ' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Ernst Russ' TSR for the last 5 years was 692%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Ernst Russ shareholders have received a total shareholder return of 22% over the last year. And that does include the dividend. However, that falls short of the 51% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Ernst Russ has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.