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. Unfortunately, that’s been the case for longer term PSB Industries (EPA:PSB) shareholders, since the share price is down 68% in the last three years, falling well short of the market return of around 27%. The more recent news is of little comfort, with the share price down 40% in a year. And the share price decline continued over the last week, dropping some 7.6%. But this could be related to the soft market, which is down about 4.7% in the same period.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
During the three years that the share price fell, PSB Industries’s earnings per share (EPS) dropped by 29% each year. This fall in EPS isn’t far from the rate of share price decline, which was 31% per year. So it seems like sentiment towards the stock hasn’t changed all that much over time. In this case, it seems that the EPS is guiding the share price.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that PSB Industries has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, PSB Industries’s TSR for the last 3 years was -36%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
PSB Industries shareholders are down 29% for the year (even including dividends) , but the market itself is up 5.4%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 5.2% per year over five years. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand PSB Industries better, we need to consider many other factors. Even so, be aware that PSB Industries is showing 3 warning signs in our investment analysis , you should know about…
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.
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.
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