Environmental Group's (ASX:EGL) Earnings Growth Lags Behind Share Price Surge

Environmental Group (EGL) has delivered a 500% return over the past five years, but the share price has fallen 31% in the last 30 days. The company's earnings per share growth has been 26% per year, lower than the 43% average annual increase in the share price. Total shareholder return has exceeded the share price return due to dividends. The company's long-term returns are strong, but the short-term decline may be a pause in the growth strategy.

The Australian-based environmental solutions provider, Environmental Group Limited (EGL), has been a standout performer in the capital goods sector, delivering a remarkable 500% return to investors over the past five years [1]. However, in contrast to its impressive long-term growth, EGL's share price has experienced a significant decline, dropping 31% within the last 30 days [1]. Despite this short-term setback, a closer look at the company's fundamentals reveals that EGL's earnings per share growth has been robust, averaging 26% per year over the past five years [1].

One of the reasons for EGL's strong earnings growth can be attributed to its diverse range of services, which includes the design, application, and servicing of gas, vapor, and dust emission control systems, and inlet and exhaust systems for gas turbines in Australia and internationally [1]. Additionally, the company's competitive landscape is favorable, with key competitors such as Korvest, LaserBond, VEEM, XRF Scientific, and others having smaller market capitalizations [1].

While EGL's earnings growth and strong competitive position are promising, it's essential to consider the recent decline in the share price. There could be several factors contributing to this, including insider selling, which has been a significant concern for investors in recent months, with one insider selling AU$1.9 million worth of stock [1]. Additionally, recent consensus earnings per share (EPS) estimates have been revised down by 13%, which may have influenced the share price decline [1].

Despite the short-term challenges, EGL's long-term prospects remain strong. The company's dividend payments have contributed to a total shareholder return that exceeds the share price return, highlighting the value of the company's consistent earnings growth and dividend payments [1]. Additionally, EGL's beta of 0.73 indicates that the stock is less volatile than the overall market, making it an attractive option for investors looking to diversify their portfolios [1].

In conclusion, while EGL's recent share price decline may be concerning for some investors, it's important to remember that the company's long-term fundamentals remain strong. With robust earnings growth, a favorable competitive landscape, and a consistent dividend payment, EGL is well-positioned to continue delivering value to investors in the long term.

References:
[1] Simplywall.st. (2022, October 17). Environmental Group Shares. https://simplywall.st/stocks/au/capital-goods/asx-egl/environmental-group-shares