It’s easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Neways Electronics International N.V. (AMS:NEWAY) have tasted that bitter downside in the last year, as the share price dropped 23%. That falls noticeably short of the market return of around 15%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 10% in three years. It’s down 1.1% in the last seven days.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Even though the Neways Electronics International share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.
It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.
Neways Electronics International’s dividend seems healthy to us, so we doubt that the yield is a concern for the market. The revenue trend doesn’t seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Neways Electronics International will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Neways Electronics International, it has a TSR of -21% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 15% in the last year, Neways Electronics International shareholders lost 21% (even including dividends) . 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. On the bright side, long term shareholders have made money, with a gain of 2.6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 – Neways Electronics International has 3 warning signs (and 1 which is significant) we think you should know about.
There are plenty of other companies that have insiders buying up shares. You probably do 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 NL 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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