It’s not a secret that every investor will make bad investments, from time to time. But it’s not unreasonable to try to avoid truly shocking capital losses. We wouldn’t blame Southern Cross Media Group Limited (ASX:SXL) shareholders if they were still in shock after the stock dropped like a lead balloon, down 89% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Notably, shareholders had a tough run over the longer term, too, with a drop of 89% in the last three years. Furthermore, it’s down 28% in about a quarter. That’s not much fun for holders.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
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.
Southern Cross Media Group managed to increase earnings per share from a loss to a profit, over the last 12 months.
We’re surprised that the share price is lower given that improvement. If the improved profitability is a sign of things to come, then right now may prove the perfect time to pop this stock on your watchlist.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
We’ve already covered Southern Cross Media Group’s share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Southern Cross Media Group shareholders, and that cash payout explains why its total shareholder loss of 84%, over the last year, isn’t as bad as the share price return.
A Different Perspective
While the broader market lost about 8.3% in the twelve months, Southern Cross Media Group shareholders did even worse, losing 84%. 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 11% 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. 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 – Southern Cross Media Group has 3 warning signs (and 2 which shouldn’t be ignored) we think you should know about.
Southern Cross Media Group 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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