The easiest way to take advantage of a bull market is to buy an index fund. While individual stocks can be big winners, many others fail to generate satisfactory returns. Investors in Sandon Capital Investments Limited (ASX:SNC) have tasted this bitter downside over the past year, with the stock price dropping 26%. This contrasts poorly with the market’s 4.6% decline. At least the damage isn’t that bad if you look at the past three years, since the stock is down 14% over that time. Shareholders have had an even tougher race lately, with the share price falling 20% in the past 90 days. However, one could argue that the price was influenced by the general market, which is down 9.0% over the same period.
Now let’s look at the fundamentals of the business and see if the long-term shareholder return matches the performance of the underlying business.
See our latest analysis for Sandon Capital Investments
While markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just underlying trading performance. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).
Over the past year, Sandon Capital Investments has seen its earnings per share rise sharply. While the company is unlikely to maintain such a high growth rate for long, it’s great to see. We are therefore surprised that the share price is down. Some different data could shed more light on the situation.
We don’t see any weakness in Sandon Capital Investments’ dividend, so the regular payout can’t really explain the stock price drop. From what we can see, earnings are pretty flat, which doesn’t really explain the stock price drop. Of course, it could just be that it simply failed to live up to market consensus expectations.
The graph below illustrates the evolution of income and income over time (reveal the exact values by clicking on the image).
Balance sheet strength is critical. It might be interesting to take a look at our free report on the evolution of its financial situation over time.
What about dividends?
In addition to measuring share price performance, investors should also consider total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, based on the assumption that dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the stock price return. In the case of Sandon Capital Investments, it has a TSR of -21% for the last 1 year. This exceeds the performance of its share price that we mentioned earlier. The dividends paid by the company thus inflated the total return to shareholders.
A different perspective
We regret to report that Sandon Capital Investments shareholders are down 21% for the year (even including dividends). Unfortunately, this is worse than the general market decline of 4.6%. However, it could simply be that the stock price was impacted by greater market jitters. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. On the positive side, long-term shareholders have made money, with a gain of 1.6% per year over half a decade. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take risks, for example – Sandon Capital Investments has 3 warning signs we think you should know.
If you like buying stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on AU exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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