Earnings are growing at Ampol (ASX:ALD) but shareholders still don't like its prospects

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Ampol Limited (ASX:ALD) share price is down 10% in the last year. That's well below the market return of 25%. However, the longer term returns haven't been so bad, with the stock down 8.0% in the last three years. It's down 14% in about a quarter.

After losing 4.0% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for Ampol

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.

The last year saw Ampol's EPS really take off. While the business is unlikely to sustain such a high growth rate for long, it's great to see. As you can imagine, the share price action therefore perturbs us. Some different data might shed some more light on the situation.

Ampol's dividend seems healthy to us, so we doubt that the yield is a concern for the market. We'd be more worried about the fact that revenue fell 5.2% year on year. The market may be extrapolating the decline, leading to questions around the sustainability of the EPS.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Ampol is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Ampol the TSR over the last 1 year was -3.8%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Ampol had a tough year, with a total loss of 3.8% (including dividends), against a market gain of about 25%. 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 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Ampol you should know about.

Of course Ampol may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.