In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Air New Zealand Limited (NZSE:AIR) shareholders, since the share price is down 49% in the last three years, falling well short of the market return of around 41%.
After losing 4.5% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
Because Air New Zealand 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last three years Air New Zealand saw its revenue shrink by 23% per year. That means its revenue trend is very weak compared to other loss making companies. On the face of it we'd posit the share price fall of 14% compound, over three years is well justified by the fundamental deterioration. The key question now is whether the company has the capacity to fund itself to profitability, without more cash. The company will need to return to revenue growth as quickly as possible, if it wants to see some enthusiasm from investors.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Air New Zealand's balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Air New Zealand's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Air New Zealand's TSR of was a loss of 44% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 0.7% in the last year, Air New Zealand shareholders lost 15%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.8% 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 Air New Zealand better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Air New Zealand .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ exchanges.
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.
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