Earnings growth of 0.5% over 5 years hasn't been enough to translate into positive returns for Fresenius SE KGaA (ETR:FRE) shareholders

By
Simply Wall St
Published
November 28, 2021
XTRA:FRE
Source: Shutterstock

For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Fresenius SE & Co. KGaA (ETR:FRE), since the last five years saw the share price fall 49%. Furthermore, it's down 24% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since Fresenius SE KGaA has shed €921m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Fresenius SE KGaA

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

While the share price declined over five years, Fresenius SE KGaA actually managed to increase EPS by an average of 2.7% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

In contrast to the share price, revenue has actually increased by 4.0% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

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

earnings-and-revenue-growth
XTRA:FRE Earnings and Revenue Growth November 29th 2021

Fresenius SE KGaA 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). 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. In the case of Fresenius SE KGaA, it has a TSR of -45% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Investors in Fresenius SE KGaA had a tough year, with a total loss of 8.8% (including dividends), against a market gain of about 18%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 8% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Fresenius SE KGaA , and understanding them should be part of your investment process.

Of course Fresenius SE KGaA 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 DE exchanges.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.