For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that’s been the case for longer term DXP Enterprises, Inc. (NASDAQ:DXPE) shareholders, since the share price is down 14% in the last three years, falling well short of the market return of around 45%. The last month has also been disappointing, with the stock slipping a further 16%. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
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.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
During five years of share price growth, DXP Enterprises moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it’s worth checking some other metrics too.
We think that the revenue decline over three years, at a rate of 4.1% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that DXP Enterprises has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for DXP Enterprises in this interactive graph of future profit estimates.
A Different Perspective
Although it hurts that DXP Enterprises returned a loss of 10% in the last twelve months, the broader market was actually worse, returning a loss of 15%. Longer term investors wouldn’t be so upset, since they would have made 0.9%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. To that end, you should be aware of the 1 warning sign we’ve spotted with DXP Enterprises .
But note: DXP Enterprises may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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