Unfortunately, investing is risky - companies can and do go bankrupt. But when you pick a company that is really flourishing, you can make more than 100%. Take, for example Fletcher Building Limited (NZSE:FBU). Its share price is already up an impressive 120% in the last twelve months. On top of that, the share price is up 13% in about a quarter. However, the longer term returns haven't been so impressive, with the stock up just 7.6% in the last three years.
Because Fletcher Building made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Fletcher Building actually shrunk its revenue over the last year, with a reduction of 9.2%. We're a little surprised to see the share price pop 120% in the last year. This is a good example of how buyers can push up prices even before the fundamental metrics show much growth. Of course, it could be that the market expected this revenue drop.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Fletcher Building is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Fletcher Building in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Fletcher Building's TSR for the last year was 124%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Fletcher Building has rewarded shareholders with a total shareholder return of 124% in the last twelve months. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 0.4% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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 1 warning sign we think you should be aware of.
Of course Fletcher Building 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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