9.3% earnings growth over 3 years has not materialized into gains for Soitec (EPA:SOI) shareholders over that period

Simply Wall St · 10/15 07:50

If you love investing in stocks you're bound to buy some losers. But the last three years have been particularly tough on longer term Soitec SA (EPA:SOI) shareholders. Sadly for them, the share price is down 54% in that time. And more recent buyers are having a tough time too, with a drop of 45% in the last year. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days.

Since Soitec has shed €132m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Soitec

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 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.

Although the share price is down over three years, Soitec actually managed to grow EPS by 31% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 17% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Soitec further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
ENXTPA:SOI Earnings and Revenue Growth October 15th 2024

Soitec is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

While the broader market gained around 8.7% in the last year, Soitec shareholders lost 45%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. Before forming an opinion on Soitec you might want to consider these 3 valuation metrics.

Of course Soitec 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 French exchanges.