Com-pu-pu-pu-pu-pu-puter-puter-puter-puter, Computershare (ASX: CPU). Perhaps I’m giving away my kiwi heritage, but whenever I say Computershare, it’s always sung to the lyrics of Mi-sex’s Computer Games.

Enough new-wave revivalism. Let’s jump straight into Computershare and the nasty rash called multiple compression that its investors are suffering from.

The chart below highlights that despite earnings (the bars) doubling from 2006, the share price (blue line) has gone nowhere in five years.

The reason for that is called multiple compression. The green line on the chart shows the price to earnings ratio (P/E ). Multiple compression is simply investors paying less for the same earnings, the result being a slowly falling P/E.

PER Compression of ASX:CPUSource: Capital IQ

Investors simply paid too much for every dollar of earnings in 2006. No doubt they looked at the explosive growth Computershare had enjoyed  and extrapolated that out way too far in to the future.

With Computershare’s share price down 45% in the last 16 months, investors anchored on its old high are now sniffing around. Have they found a bargain? I think not.

Computershare’s multiples are still too high and worse yet profitability and margins have been sliding since 2008. The 2011 preliminary financials confirms that both profitability and margins continue to deteriorate.

Computershare Ltd. (ASX:CPU) Profitability and margins fallSource: Capital IQ

Computershare’s share price could outperform from here, but it faces an uphill battle.

Investors hoping that recent European acquisitions and the proposed US acquisition of BNY Mellon can reignite growth are desperately clinging to the slippery surface of a once-great growth company. Even if earnings resume an upward trajectory, with multiples still too high for the potential growth, the share price is likely to underperform.

Growth always flattens, inflated multiples always compress. It you want to avoid years in the wilderness of zero returns, or worse serious losses, then don’t buy overpriced growth companies.

Dean Morel is The Motley Fool’s Investment Analyst. Dean has no position in Computershare, but does hold a long position in one of their competitors. The Motley Fool’s disclosure policy is as sane as they come.

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