Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the SAF-Holland S.A. (FRA:SFQ) share price slid 32% over twelve months. That falls noticeably short of the market return of around -4.6%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 9.8% in three years. The falls have accelerated recently, with the share price down 12% in the last three months.
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.
Even though the SAF-Holland share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped. It’s fair to say that the share price does not seem to be reflecting the EPS growth. So it’s easy to justify a look at some other metrics.
SAF-Holland’s dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn’t really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
SAF-Holland is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think SAF-Holland will earn in the future (free analyst 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of SAF-Holland, it has a TSR of -29% for the last year. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 4.6% in the twelve months, SAF-Holland shareholders did even worse, losing 29% (even including dividends). Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 1.2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Importantly, we haven’t analysed SAF-Holland’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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.