Investing in stocks inevitably means buying into some companies that perform poorly. Long term Zespól Elektrocieplowni Wroclawskich KOGENERACJA S.A. (WSE:KGN) shareholders know that all too well, since the share price is down considerably over three years. Sadly for them, the share price is down 60% in that time. It’s up 2.2% in the last seven days.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Zespól Elektrocieplowni Wroclawskich KOGENERACJA saw its EPS decline at a compound rate of 24% per year, over the last three years. This fall in EPS isn’t far from the rate of share price decline, which was 26% per year. That suggests that the market sentiment around the company hasn’t changed much over that time, despite the disappointment. Rather, the share price has approximately tracked EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Zespól Elektrocieplowni Wroclawskich KOGENERACJA’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Zespól Elektrocieplowni Wroclawskich KOGENERACJA’s total shareholder return (TSR) and its share price return. 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. Dividends have been really beneficial for Zespól Elektrocieplowni Wroclawskich KOGENERACJA shareholders, and that cash payout explains why its total shareholder loss of 55%, over the last 3 years, isn’t as bad as the share price return.
A Different Perspective
While the broader market lost about 1.1% in the twelve months, Zespól Elektrocieplowni Wroclawskich KOGENERACJA shareholders did even worse, losing 16%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3.5% over the last half decade. We realise that Buffett 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. 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. Be aware that Zespól Elektrocieplowni Wroclawskich KOGENERACJA is showing 1 warning sign in our investment analysis , you should know about…
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on PL exchanges.
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