Volatility 101: Should ContourGlobal (LON:GLO) Shares Have Dropped 10%?

It’s normal to be annoyed when stock you own has a declining share price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. The ContourGlobal plc (LON:GLO) is down 10% over a year, but the total shareholder return is -0.6% once you include the dividend. And that total return actually beats the market return of -14%. Because ContourGlobal hasn’t been listed for many years, the market is still learning about how the business performs. The share price has dropped 25% in three months. Of course, this share price action may well have been influenced by the 25% decline in the broader market, throughout the period.

See our latest analysis for ContourGlobal

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

Even though the ContourGlobal share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

It’s fair to say that the share price does not seem to be reflecting the EPS growth. So it’s easy to justify a look at some other metrics.

We don’t see any weakness in the ContourGlobal’s dividend so the steady payout can’t really explain the share price drop. The revenue trend doesn’t seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

LSE:GLO Income Statement March 27th 2020
LSE:GLO Income Statement March 27th 2020

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for ContourGlobal in this interactive graph of future profit estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of ContourGlobal, it has a TSR of -0.6% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It’s not great that ContourGlobal shares failed to make money for shareholders in the last year, but the silver lining is that the loss of 0.6% , including dividends, wasn’t as bad as the broader market loss of about 14%. Things weren’t so bad until the last three months, when the stock dropped 25%. It’s always a worry to see a share price decline like that, but at the same time, it is an unavoidable part of investing. In times of uncertainty we usually try to focus on the long term fundamental business metrics. It’s always interesting to track share price performance over the longer term. But to understand ContourGlobal better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we’ve spotted with ContourGlobal (including 1 which is doesn’t sit too well with us) .

ContourGlobal is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.