Volatility 101: Should Técnicas Reunidas Shares Have Dropped 36%?

Técnicas Reunidas, S.A. (BME:TRE) shareholders should be happy to see the share price up 12% in the last quarter. But over the last half decade, the stock has not performed well. In fact, the share price is down 36%, which falls well short of the return you could get by buying an index fund.

See our latest analysis for Técnicas Reunidas

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the five years over which the share price declined, Técnicas Reunidas’s earnings per share (EPS) dropped by 23% each year. This fall in the EPS is worse than the 8.6% compound annual share price fall. So investors might expect EPS to bounce back — or they may have previously foreseen the EPS decline.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

BME:TRE Past and Future Earnings, March 7th 2019
BME:TRE Past and Future Earnings, March 7th 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Dividend Lost

The share price return figures discussed above don’t include the value of dividends paid previously, but the total shareholder return (TSR) does. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. Técnicas Reunidas’s TSR over the last 5 years is -27%; better than its share price return. Even though the company isn’t paying dividends at the moment, it has done in the past.

A Different Perspective

While the broader market gained around 1.3% in the last year, Técnicas Reunidas shareholders lost 0.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 6.0% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Técnicas Reunidas 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.

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 editorial-team@simplywallst.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.