The 4.3% return delivered to Sociedad Matriz SAAM's (SNSE:SMSAAM) shareholders actually lagged YoY earnings growth

Simply Wall St
May 10, 2022
Source: Shutterstock

One of the frustrations of investing is when a stock goes down. But when the market is down, you're bound to have some losers. The Sociedad Matriz SAAM S.A. (SNSE:SMSAAM) is down 14% over three years, but the total shareholder return is 4.3% once you include the dividend. That's better than the market which declined 15% over the last three years. On the other hand the share price has bounced 10.0% over the last week. We would posit that the recently released financial results have driven this rise, so you might want to check the latest numbers in our full company report.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Sociedad Matriz SAAM

Sociedad Matriz SAAM recorded just US$782,349,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Sociedad Matriz SAAM will significantly advance the business plan before too long.

We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

Our data indicates that Sociedad Matriz SAAM had US$642m more in total liabilities than it had cash, when it last reported in March 2022. That makes it extremely high risk, in our view. But since the share price has dived 5% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Sociedad Matriz SAAM's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

SNSE:SMSAAM Debt to Equity History May 10th 2022

Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sociedad Matriz SAAM's TSR for the last 3 years was 4.3%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Sociedad Matriz SAAM shareholders have received a total shareholder return of 1.8% over one year. Of course, that includes the dividend. However, that falls short of the 3% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Sociedad Matriz SAAM better, we need to consider many other factors. Take risks, for example - Sociedad Matriz SAAM has 1 warning sign we think you should be aware of.

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 CL exchanges.

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