Earnings grew faster than the 0.9% CAGR delivered to Coronation Fund Managers (JSE:CML) shareholders over the last three years

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 Coronation Fund Managers Limited (JSE:CML) shareholders have had that experience, with the share price dropping 25% in three years, versus a market decline of about 5.4%. More recently, the share price has dropped a further 15% in a month. But this could be related to poor market conditions -- stocks are down 8.6% in the same time.

After losing 15% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, Coronation Fund Managers actually managed to grow EPS by 5.3% per year in that time. 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 else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that the dividend has declined - a likely contributor to the share price drop. The revenue decline, at an annual rate of 3.6% over three years, might be considered salt in the wound.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

This free interactive report on Coronation Fund Managers' balance sheet strength is a great place to start, if you want to investigate the stock further.

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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Coronation Fund Managers, it has a TSR of 2.8% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Coronation Fund Managers has rewarded shareholders with a total shareholder return of 31% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Coronation Fund Managers better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Coronation Fund Managers (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

But note: Coronation Fund Managers may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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