Reckon Limited (ASX:RKN) shareholders should be happy to see the share price up 21% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been less than pleasing. You would have done a lot better buying an index fund, since the stock has dropped 56% in that half decade.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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).
During the five years over which the share price declined, Reckon’s earnings per share (EPS) dropped by 12% each year. Notably, the share price has fallen at 15% per year, fairly close to the change in the EPS. This implies that the market has had a fairly steady view of the stock. So it’s fair to say the share price has been responding to changes in EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Reckon’s key metrics by checking this interactive graph of Reckon’s earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Reckon the TSR over the last 5 years was -44%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Reckon shareholders gained a total return of 19% during the year. Unfortunately this falls short of the market return. But at least that’s still a gain! Over five years the TSR has been a reduction of 11% per year, over five years. So this might be a sign the business has turned its fortunes around. If you would like to research Reckon in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.