Repsol, S.A. (BME:REP) shareholders should be happy to see the share price up 23% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 35% in the last three years, falling well short of the market return.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
We know that Repsol has been profitable in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. Other metrics may better explain the share price move.
It's quite likely that the declining dividend has caused some investors to sell their shares, pushing the price lower in the process. The revenue decline, at an annual rate of 11% over three years, might be considered salt in the wound.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Repsol is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Repsol in this interactive graph of future profit estimates.
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, Repsol's TSR for the last 3 years was -22%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Repsol shareholders have received a total shareholder return of 41% over the last year. That's including the dividend. That's better than the annualised return of 4% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Repsol better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Repsol .
We will like Repsol better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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