Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. For example the Countplus Limited (ASX:CUP) share price dropped 71% over five years. That is extremely sub-optimal, to say the least. Unfortunately the share price momentum is still quite negative, with prices down 11% in thirty days.
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Countplus became profitable within the last five years. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
Arguably, the revenue drop of 4.3% a year for half a decade suggests that the company can’t grow in the long term. That could explain the weak share price.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
We know that Countplus has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Countplus in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Countplus’s TSR for the last 5 years was -62%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Countplus shareholders are down 15% for the year (even including dividends), but the market itself is up 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 18% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before spending more time on Countplus it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.