The five-year decline in earnings for Svenska Cellulosa Aktiebolaget STO:SCA B) isn't encouraging, but shareholders are still up 99% over that period

It hasn't been the best quarter for Svenska Cellulosa Aktiebolaget SCA (publ) (STO:SCA B) shareholders, since the share price has fallen 12% in that time. While that's not great, the returns over five years have been decent. The share price is up 86%, which is better than the market return of 79%.

Although Svenska Cellulosa Aktiebolaget has shed kr6.5b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Svenska Cellulosa Aktiebolaget

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 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.

Svenska Cellulosa Aktiebolaget's earnings per share are down 1.1% per year, despite strong share price performance over five years.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We doubt the modest 1.9% dividend yield is attracting many buyers to the stock. The revenue growth of 0.5% per year hardly seems impressive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Svenska Cellulosa Aktiebolaget is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Svenska Cellulosa Aktiebolaget in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Svenska Cellulosa Aktiebolaget, it has a TSR of 99% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Svenska Cellulosa Aktiebolaget shareholders are up 7.0% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 15% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Svenska Cellulosa Aktiebolaget you should know about.

We will like Svenska Cellulosa Aktiebolaget better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Swedish 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com