It is doubtless a positive to see that the BW Offshore Limited (OB:BWO) share price has gained some 43% in the last three months. But if you look at the last five years the returns have not been good. In fact, the share price is down 88%, which falls well short of the return you could get by buying an index fund.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, BW Offshore moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
Arguably, the revenue drop of 11% a year for half a decade suggests that the company can’t grow in the long term. This has probably encouraged some shareholders to sell down the stock.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We know that BW Offshore has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling BW Offshore stock, you should check out this FREE detailed report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between BW Offshore’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. Dividends have been really beneficial for BW Offshore shareholders, and that cash payout explains why its total shareholder loss of 42%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
BW Offshore shareholders gained a total return of 5.8% during the year. But that was short of the market average. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 10% endured over half a decade. So this might be a sign the business has turned its fortunes around. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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 NO exchanges.
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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. Thank you for reading.