Imagine Owning Chemring Group (LON:CHG) And Wondering If The 41% Share Price Slide Is Justified

Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Chemring Group PLC (LON:CHG), since the last five years saw the share price fall 41%. And it’s not just long term holders hurting, because the stock is down 22% in the last year. The silver lining is that the stock is up 2.3% in about a week.

Check out our latest analysis for Chemring Group

Chemring Group isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last half decade, Chemring Group saw its revenue increase by 0.5% per year. That’s far from impressive given all the money it is losing. Given the weak growth, the share price fall of 10% isn’t particularly surprising. Investors should consider how bad the losses are, and whether the company can make it to profitability with ease. It could be worth putting it on your watchlist and revisiting when it makes its maiden profit.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

LSE:CHG Income Statement, March 19th 2019
LSE:CHG Income Statement, March 19th 2019

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling Chemring Group stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Chemring Group the TSR over the last 5 years was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Chemring Group had a tough year, with a total loss of 21% (including dividends), against a market gain of about 5.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.3% over the last half decade. We realise that Buffett 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 businesses. Before spending more time on Chemring Group it might be wise to click here to see if insiders have been buying or selling shares.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.