We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the A.H. Belo Corporation (NYSE:AHC) share price is a whole 68% lower. That’s an unpleasant experience for long term holders. We also note that the stock has performed poorly over the last year, with the share price down 28%. Furthermore, it’s down 19% in about a quarter. That’s not much fun for holders.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
A.H. Belo became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
We note that the dividend has remained healthy, so that wouldn’t really explain the share price drop. It could be that the revenue decline of 6.4% per year is viewed as evidence that A.H. Belo is shrinking. With revenue weak, and increased payouts of cash, the market might be taking the view that its best days are behind it.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of A.H. Belo’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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, A.H. Belo’s TSR for the last 5 years was -56%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in A.H. Belo had a tough year, with a total loss of 24% (including dividends) , against a market gain of about 24%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 15% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality business. 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. Take risks, for example – A.H. Belo has 6 warning signs (and 2 which are significant) we think you should know about.
A.H. Belo is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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