Strong week for Fletcher Building (NZSE:FBU) shareholders doesn't alleviate pain of three-year loss

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Fletcher Building Limited (NZSE:FBU) shareholders have had that experience, with the share price dropping 58% in three years, versus a market decline of about 6.4%. And the ride hasn't got any smoother in recent times over the last year, with the price 45% lower in that time. The falls have accelerated recently, with the share price down 22% in the last three months.

While the stock has risen 7.0% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Fletcher Building

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Fletcher Building became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

We note that, in three years, revenue has actually grown at a 3.8% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Fletcher Building further; while we may be missing something on this analysis, there might also be an opportunity.

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

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Fletcher Building will earn in the future (free profit forecasts).

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Fletcher Building's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Fletcher Building's TSR, which was a 49% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

We regret to report that Fletcher Building shareholders are down 43% for the year. Unfortunately, that's worse than the broader market decline of 0.06%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild 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 business. 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. Take risks, for example - Fletcher Building has 4 warning signs we think you should be aware of.

Fletcher Building is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com