As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Compagnie de Saint-Gobain S.A. (EPA:SGO) shareholders have had that experience, with the share price dropping 29% in three years, versus a market return of about 26%. Furthermore, it’s down 13% in about a quarter. That’s not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 7.0% in the same timeframe.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Although the share price is down over three years, Compagnie de Saint-Gobain actually managed to grow EPS by 3.1% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
After considering the numbers, we’d posit that the the market had higher expectations of EPS growth, three years back. However, taking a look at other business metrics might shed a bit more light on the share price action.
We note that the dividend seems healthy enough, so that probably doesn’t explain the share price drop. Revenue has been pretty flat over three years, so that isn’t an obvious reason shareholders would sell. A closer look at revenue and profit trends might yield insights.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Compagnie de Saint-Gobain is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Compagnie de Saint-Gobain’s TSR for the last 3 years was -22%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that Compagnie de Saint-Gobain has rewarded shareholders with a total shareholder return of 9.1% in the last twelve months. Of course, that includes the dividend. There’s no doubt those recent returns are much better than the TSR loss of 1.0% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It’s always interesting to track share price performance over the longer term. But to understand Compagnie de Saint-Gobain better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for Compagnie de Saint-Gobain that you should be aware of before investing here.
We will like Compagnie de Saint-Gobain better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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.
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