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. Unfortunately, that’s been the case for longer term Qantas Airways Limited (ASX:QAN) shareholders, since the share price is down 44% in the last three years, falling well short of the market return of around 17%. The more recent news is of little comfort, with the share price down 44% in a year. Even worse, it’s down 16% in about a month, which isn’t fun at all.
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 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.
Although the share price is down over three years, Qantas Airways actually managed to grow EPS by 8.1% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.
Revenue is actually up 5.0% 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 Qantas Airways 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).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Qantas Airways in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Qantas Airways’ total shareholder return (TSR) and its share price return. 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. Dividends have been really beneficial for Qantas Airways shareholders, and that cash payout explains why its total shareholder loss of 39%, over the last 3 years, isn’t as bad as the share price return.
A Different Perspective
We regret to report that Qantas Airways shareholders are down 42% for the year. Unfortunately, that’s worse than the broader market decline of 8.7%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 1.3% per year over five years. We realise that Baron Rothschild 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Qantas Airways is showing 3 warning signs in our investment analysis , you should know about…
Qantas Airways is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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.
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