We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the Banco Santander, S.A. (BME:SAN) share price is a whole 71% lower. That's not a lot of fun for true believers. And we doubt long term believers are the only worried holders, since the stock price has declined 50% over the last twelve months. Unfortunately the share price momentum is still quite negative, with prices down 17% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
In the last half decade Banco Santander saw its share price fall as its EPS declined below zero. The recent extraordinary items contributed to this situation. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. But we would generally expect a lower price, given the situation.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Banco Santander's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Banco Santander's share price action, but we should also mention its 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. Dividends have been really beneficial for Banco Santander shareholders, and that cash payout explains why its total shareholder loss of 65%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 16% in the twelve months, Banco Santander shareholders did even worse, losing 49%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. 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. 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. Even so, be aware that Banco Santander is showing 2 warning signs in our investment analysis , you should know about...
Banco Santander 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 ES exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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