It is doubtless a positive to see that the Sculptor Capital Management, Inc. (NYSE:SCU) share price has gained some 54% in the last three months. But if you look at the last five years the returns have not been good. After all, the share price is down 51% in that time, significantly under-performing the market.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 half decade during which the share price slipped, Sculptor Capital Management actually saw its earnings per share (EPS) improve by 39% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
Arguably, the revenue drop of 14% a year for half a decade suggests that the company can't grow in the long term. That could explain the weak share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Sculptor Capital Management has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Sculptor Capital Management's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Sculptor Capital Management'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. Dividends have been really beneficial for Sculptor Capital Management shareholders, and that cash payout explains why its total shareholder loss of 42%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market gained around 27% in the last year, Sculptor Capital Management shareholders lost 25%. 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 7% 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 Sculptor Capital Management better, we need to consider many other factors. Take risks, for example - Sculptor Capital Management has 3 warning signs we think you should be aware of.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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