Silicom (NASDAQ:SILC) investors are sitting on a loss of 33% if they invested five years ago

The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Silicom Ltd. (NASDAQ:SILC), since the last five years saw the share price fall 33%.

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.

View our latest analysis for Silicom

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. 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.

During the five years over which the share price declined, Silicom's earnings per share (EPS) dropped by 0.7% each year. This reduction in EPS is less than the 8% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Silicom has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

While it's certainly disappointing to see that Silicom shares lost 12% throughout the year, that wasn't as bad as the market loss of 19%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 6% over the last half decade. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. 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. Take risks, for example - Silicom has 1 warning sign we think you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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