This month, we saw the SpeedCast International Limited (ASX:SDA) up an impressive 31%. But in truth the last year hasn’t been good for the share price. In fact, the price has declined 27% in a year, falling short of the returns you could get by investing in an index fund.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One flawed but reasonable way to assess how sentiment around a company has changed, is to compare the earnings per share (EPS) with the share price.
Unfortunately SpeedCast International reported an EPS drop of 67% for the last year. This fall in the EPS is significantly worse than the 27% the share price fall. It may have been that the weak EPS was not as bad as some had feared. Indeed, with a P/E ratio of 352.91 there is obviously some real optimism that earnings will bounce back.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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)?
Investors should note that there’s a difference between SpeedCast International’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Dividends have been really beneficial for SpeedCast International shareholders, and that cash payout explains why its TSR of -26%, over the last year, isn’t as bad as the share price return.
A Different Perspective
SpeedCast International shareholders are down 26% for the year (even including dividends), but the broader market is up 7.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 0.6% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
SpeedCast International 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.
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.