Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. To wit, the Evotec share price has climbed 34% in five years, easily topping the market decline of 4.8% (ignoring dividends).
In light of the stock dropping 5.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, Evotec managed to grow its earnings per share at 0.8% a year. We do note that extraordinary items have impacted its earnings history. This EPS growth is lower than the 6% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Evotec's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
We regret to report that Evotec shareholders are down 25% for the year. Unfortunately, that's worse than the broader market decline of 3.1%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on German exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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