As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Aquila Services Group plc (LON:AQSG) shareholders have had that experience, with the share price dropping 21% in three years, versus a market return of about 22%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the unfortunate three years of share price decline, Aquila Services Group actually saw its earnings per share (EPS) improve by 35% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
Revenue is actually up 14% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Aquila Services Group more closely, as sometimes stocks fall unfairly. This could present an opportunity.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling Aquila Services Group stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Aquila Services Group the TSR over the last 3 years was -15%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Over the last year, Aquila Services Group shareholders took a loss of 1.7% , including dividends . In contrast the market gained about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn’t pretty, with investment losses running at 5.4% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. For example, we’ve discovered 2 warning signs for Aquila Services Group which any shareholder or potential investor should be aware of.
Of course Aquila Services Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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