For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Ambea AB (publ) (STO:AMBEA) shareholders have had that experience, with the share price dropping 35% in three years, versus a market return of about 31%. And over the last year the share price fell 27%, so we doubt many shareholders are delighted. But it's up 9.5% in the last week. But this could be related to the strong market, with stocks up around 5.6% in the same time.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate three years of share price decline, Ambea actually saw its earnings per share (EPS) improve by 13% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that, in three years, revenue has actually grown at a 29% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Ambea further; while we may be missing something on this analysis, there might also be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Ambea has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Ambea
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Ambea'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. Ambea's TSR of was a loss of 33% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
The last twelve months weren't great for Ambea shares, which cost holders 27%, while the market was up about 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 10% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand Ambea better, we need to consider many other factors. Even so, be aware that Ambea is showing 1 warning sign in our investment analysis , you should know about...
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 SE exchanges.
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This article by Simply Wall St is general in nature. 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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