Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Bouygues SA (EPA:EN) have tasted that bitter downside in the last year, as the share price dropped 19%. That’s disappointing when you consider the market returned -1.4%. On the bright side, the stock is actually up 12% in the last three years. The silver lining is that the stock is up 1.9% in about a week.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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.
During the unfortunate twelve months during which the Bouygues share price fell, it actually saw its earnings per share (EPS) improve by 3.1%. Of course, the situation might betray previous over-optimism about growth. It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.
We don’t see any weakness in the Bouygues’s dividend so the steady payout can’t really explain the share price drop. From what we can see, revenue is pretty flat, so that doesn’t really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
Bouygues 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?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Bouygues the TSR over the last year was -15%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 1.4% in the twelve months, Bouygues shareholders did even worse, losing 15% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 4.0% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Keeping this in mind, a solid next step might be to take a look at Bouygues’s dividend track record. This free interactive graph is a great place to start.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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 email@example.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.