In This Article:
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by EDAG Engineering Group AG (ETR:ED4) shareholders over the last year, as the share price declined 51%. That contrasts poorly with the market return of 17%. We note that it has not been easy for shareholders over three years, either; the share price is down 40% in that time. Furthermore, it's down 17% in about a quarter. That's not much fun for holders.
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 EDAG Engineering Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Unhappily, EDAG Engineering Group had to report a 33% decline in EPS over the last year. The share price decline of 51% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders more nervous about the business. The P/E ratio of 7.75 also points to the negative market sentiment.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that EDAG Engineering Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on EDAG Engineering Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 EDAG Engineering Group, it has a TSR of -49% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
EDAG Engineering Group shareholders are down 49% for the year (even including dividends), but the market itself is up 17%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand EDAG Engineering Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for EDAG Engineering Group that you should be aware of before investing here.