Volatility 101: Should Castings (LON:CGS) Shares Have Dropped 11%?

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Castings P.L.C. (LON:CGS) shareholders have had that experience, with the share price dropping 11% in three years, versus a market return of about 19%.

View 1 warning sign we detected for Castings

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).

During the three years that the share price fell, Castings's earnings per share (EPS) dropped by 4.8% each year. This fall in the EPS is worse than the 3.6% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Castings 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). 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. We note that for Castings the TSR over the last 3 years was 2.7%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Castings provided a TSR of 4.7% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 4.0% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Castings better, we need to consider many other factors. For example, we've discovered 1 warning sign for Castings (of which 1 is major) which any shareholder or potential investor should be aware of.

But note: Castings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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.

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. Thank you for reading.