Stock Analysis

Reflecting on Gamuda Berhad's (KLSE:GAMUDA) Share Price Returns Over The Last Three Years

KLSE:GAMUDA
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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Gamuda Berhad (KLSE:GAMUDA) shareholders have had that experience, with the share price dropping 25% in three years, versus a market decline of about 0.4%. There was little comfort for shareholders in the last week as the price declined a further 1.3%.

Check out our latest analysis for Gamuda Berhad

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Gamuda Berhad saw its EPS decline at a compound rate of 16% per year, over the last three years. In comparison the 9% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
KLSE:GAMUDA Earnings Per Share Growth November 28th 2020

It might be well worthwhile taking a look at our free report on Gamuda Berhad's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Gamuda Berhad's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Gamuda Berhad's TSR, which was a 18% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

Gamuda Berhad shareholders are down 0.9% for the year, but the market itself is up 5.6%. 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. Unfortunately, longer term shareholders are suffering worse, given the loss of 1.5% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Gamuda Berhad you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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