Stock Analysis

If You Had Bought Air New Zealand's (NZSE:AIR) Shares Three Years Ago You Would Be Down 61%

  •  Updated
NZSE:AIR
Source: Shutterstock

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Air New Zealand Limited (NZSE:AIR) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 61% drop in the share price over that period. And over the last year the share price fell 52%, so we doubt many shareholders are delighted. Even worse, it's down 18% in about a month, which isn't fun at all.

See our latest analysis for Air New Zealand

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the three years that the share price fell, Air New Zealand's earnings per share (EPS) dropped by 17% each year. This reduction in EPS is slower than the 27% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 6.84.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
NZSE:AIR Earnings Per Share Growth July 16th 2020

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. Dive deeper into the earnings by checking this interactive graph of Air New Zealand's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered Air New Zealand's share price action, but we should also mention its 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. Air New Zealand's TSR of was a loss of 51% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Air New Zealand shareholders are down 49% for the year, but the market itself is up 5.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2.7% 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 Air New Zealand better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Air New Zealand .

Air New Zealand 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.

When trading Air New Zealand or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Air New Zealand is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis