On average, over time, stock markets tend to rise higher. This makes investing attractive. But if when you choose to buy stocks, some of them will be below average performers. Unfortunately for shareholders, while the Origin Enterprises plc (ISE:OIZ) share price is up 45% in the last year, that falls short of the market return. On the other hand, longer term shareholders have had a tougher run, with the stock falling 25% in three years.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last twelve months, Origin Enterprises actually shrank its EPS by 45%.
This means it’s unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We are skeptical of the suggestion that the 1.6% dividend yield would entice buyers to the stock. Origin Enterprises’ revenue actually dropped 8.5% over last year. So using a snapshot of key business metrics doesn’t give us a good picture of why the market is bidding up the stock.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Origin Enterprises’ financial health with this free report on its balance sheet.
A Different Perspective
Origin Enterprises shareholders are up 47% for the year (even including dividends). But that was short of the market average. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 6% endured over half a decade. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Origin Enterprises , and understanding them should be part of your investment process.
Of course Origin Enterprises may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IE exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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