Rovio Entertainment Oyj (HEL:ROVIO) Share Prices Have Dropped 48% In The Last Three Years

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Rovio Entertainment Oyj (HEL:ROVIO) shareholders have had that experience, with the share price dropping 48% in three years, versus a market return of about 29%. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

See our latest analysis for Rovio Entertainment Oyj

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).

Although the share price is down over three years, Rovio Entertainment Oyj actually managed to grow EPS by 21% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.8% dividend yield is unlikely to be guiding the market view of the stock. The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Rovio Entertainment Oyj has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Rovio Entertainment Oyj in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Rovio Entertainment Oyj, it has a TSR of -45% for the last 3 years. 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

We're pleased to report that Rovio Entertainment Oyj rewarded shareholders with a total shareholder return of 22% over the last year. And yes, that does include the dividend. What is absolutely clear is that is far preferable to the dismal 13% average annual loss suffered over the last three years. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. It's always interesting to track share price performance over the longer term. But to understand Rovio Entertainment Oyj better, we need to consider many other factors. For instance, we've identified 1 warning sign for Rovio Entertainment Oyj that you should be aware of.

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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 FI exchanges.

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