Akzo Nobel (AMS:AKZA) investors are sitting on a loss of 19% if they invested three years ago
Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Akzo Nobel N.V. (AMS:AKZA) shareholders have had that experience, with the share price dropping 25% in three years, versus a market return of about 19%. The falls have accelerated recently, with the share price down 17% in the last three months. Of course, this share price action may well have been influenced by the 12% decline in the broader market, throughout the period.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Akzo Nobel
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Akzo Nobel saw its EPS decline at a compound rate of 9.5% per year, over the last three years. This change in EPS is reasonably close to the 9% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. In this case, it seems that the EPS is guiding the share price.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Akzo Nobel's earnings, revenue and cash flow.
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. As it happens, Akzo Nobel's TSR for the last 3 years was -19%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Akzo Nobel provided a TSR of 4.1% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 0.7% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 3 warning signs for Akzo Nobel (1 is a bit unpleasant) that you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Dutch 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.
