Spark New Zealand's (NZSE:SPK) earnings trajectory could turn positive as the stock lifts 4.0% this past week

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Spark New Zealand Limited (NZSE:SPK) shareholders, since the share price is down 57% in the last three years, falling well short of the market decline of around 1.7%. And the ride hasn't got any smoother in recent times over the last year, with the price 56% lower in that time. The falls have accelerated recently, with the share price down 29% in the last three months.

While the stock has risen 4.0% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Spark New Zealand saw its EPS decline at a compound rate of 23% per year, over the last three years. This change in EPS is reasonably close to the 25% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Spark New Zealand's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Spark New Zealand the TSR over the last 3 years was -45%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Spark New Zealand had a tough year, with a total loss of 51% (including dividends), against a market gain of about 3.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Spark New Zealand better, we need to consider many other factors. For instance, we've identified 4 warning signs for Spark New Zealand (1 is concerning) that you should be aware of.

Spark New Zealand is not the only stock that insiders are buying. For those who like to find lesser know companies 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 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.