AutoCanada Inc. (TSE:ACQ) shareholders should be happy to see the share price up 15% in the last month. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Like a ship taking on water, the share price has sunk 74% in that time. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over five years AutoCanada’s earnings per share dropped significantly, falling to a loss, with the share price also lower. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. However, we can say we’d expect to see a falling share price in this scenario.
The company’s earnings per share (over time) is 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. Dive deeper into the earnings by checking this interactive graph of AutoCanada’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for AutoCanada the TSR over the last 5 years was -70%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 3.6% in the last year, AutoCanada shareholders lost 38% (even including dividends). 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 21% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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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.