The 2.2% return delivered to NetLink NBN Trust's (SGX:CJLU) shareholders actually lagged YoY earnings growth

As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term NetLink NBN Trust (SGX:CJLU) shareholders have had that experience, with the share price dropping 13% in three years, versus a market decline of about 6.7%.

While the stock has risen 3.5% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for NetLink NBN Trust

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.

Although the share price is down over three years, NetLink NBN Trust actually managed to grow EPS by 8.1% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

We're actually a quite surprised to see the share price down while EPS have grown strongly. So we'll have to take a look at other metrics to try to understand the price action.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Revenue has been pretty flat over three years, so that isn't an obvious reason shareholders would sell. So it might be worth looking at how revenue growth over time, in greater detail.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that NetLink NBN Trust 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 NetLink NBN Trust

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for NetLink NBN Trust the TSR over the last 3 years was 2.2%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 6.2% in the last year, NetLink NBN Trust shareholders lost 5.0% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 2 warning signs for NetLink NBN Trust that you should be aware of before investing here.

We will like NetLink NBN Trust better if we see some big insider buys. While we wait, check out this free list of growing companies 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 SG 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.