Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding The New Zealand Refining Company Limited (NZSE:NZR) during the five years that saw its share price drop a whopping 79%. And it's not just long term holders hurting, because the stock is down 67% in the last year. It's down 2.9% in the last seven days.
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.
In the last half decade New Zealand Refining saw its share price fall as its EPS declined below zero. At present it's hard to make valid comparisons between EPS and the share price. But we would generally expect a lower price, given the situation.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into New Zealand Refining's key metrics by checking this interactive graph of New Zealand Refining's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between New Zealand Refining's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for New Zealand Refining shareholders, and that cash payout explains why its total shareholder loss of 73%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
New Zealand Refining shareholders are down 67% for the year, but the market itself is up 11%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand New Zealand Refining better, we need to consider many other factors. For example, we've discovered 2 warning signs for New Zealand Refining that you should be aware of before investing here.
Of course New Zealand Refining may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ 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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