When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you’d like to see the share price move up more than the market average. Unfortunately for shareholders, while the Epsilon Energy Ltd. (NASDAQ:EPSN) share price is up 83% in the last five years, that’s less than the market return. But if you include dividends then the return is market-beating. Over the last twelve months the stock price has risen a very respectable 8.0%.
So let’s assess the underlying fundamentals over the last 5 years and see if they’ve moved in lock-step with shareholder returns.
View our latest analysis for Epsilon Energy
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.
Epsilon Energy’s earnings per share are down 4.0% per year, despite strong share price performance over five years.
So it’s hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it’s worth taking a look at other metrics to try to understand the share price movements.
We note that the dividend has not increased, so that doesn’t seem to explain the increase, either. But it’s reasonably likely that the 9.7% annual compound revenue growth is considered evidence that Epsilon Energy has plenty of growth ahead of it. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
NasdaqGM:EPSN Earnings and Revenue Growth November 29th 2024
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Epsilon Energy stock, you should check out this free report showing analyst profit forecasts.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Epsilon Energy the TSR over the last 5 years was 107%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
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