Stock Analysis

Introducing Australian Vintage (ASX:AVG), A Stock That Climbed 27% In The Last Five Years

ASX:AVG
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Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Australian Vintage Ltd (ASX:AVG) share price is up 27% in the last 5 years, clearly besting the market return of around 13% (ignoring dividends).

View our latest analysis for Australian Vintage

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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Australian Vintage actually saw its EPS drop 11% per year.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

There's no sign of growing dividends, which might have explained the resilient share price. The revenue growth over five years doesn't seem to explain the buoyant share price, but a closer inspection of the trend might be informative.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
ASX:AVG Earnings and Revenue Growth August 24th 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Australian Vintage's TSR for the last 5 years was 42%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it's never nice to take a loss, Australian Vintage shareholders can take comfort that , including dividends,their trailing twelve month loss of 1.5% wasn't as bad as the market loss of around 2.5%. Longer term investors wouldn't be so upset, since they would have made 7.3%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Australian Vintage better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Australian Vintage you should know about.

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 AU exchanges.

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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. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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