Stock Analysis

Tower's(NZSE:TWR) Share Price Is Down 61% Over The Past Five Years.

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NZSE:TWR
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While it may not be enough for some shareholders, we think it is good to see the Tower Limited (NZSE:TWR) share price up 23% in a single quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. After all, the share price is down 61% in that time, significantly under-performing the market.

Check out our latest analysis for Tower

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Tower 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. Other metrics may better explain the share price move.

In contrast to the share price, revenue has actually increased by 4.6% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
NZSE:TWR Earnings and Revenue Growth January 24th 2021

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Tower in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Tower'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 Tower's TSR, which was a 46% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

Tower shareholders are up 1.4% for the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 8% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Tower , and understanding them should be part of your investment process.

Tower is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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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