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Did Changing Sentiment Drive ClearView Wealth's (ASX:CVW) Share Price Down A Painful 83%?

Simply Wall St

ClearView Wealth Limited (ASX:CVW) shareholders should be happy to see the share price up 23% in the last month. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 83%. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for ClearView Wealth

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.

During the three years that the share price fell, ClearView Wealth's earnings per share (EPS) dropped by 52% each year. This fall in EPS isn't far from the rate of share price decline, which was 45% per year. So it seems like sentiment towards the stock hasn't changed all that much over time. It seems like the share price is reflecting the declining earnings per share.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

ASX:CVW Past and Future Earnings May 26th 2020

It might be well worthwhile taking a look at our free report on ClearView Wealth's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered ClearView Wealth's share price action, but we should also mention its total shareholder return (TSR). 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. Its history of dividend payouts mean that ClearView Wealth's TSR, which was a 82% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 10% in the twelve months, ClearView Wealth shareholders did even worse, losing 68%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% per year over five years. 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. 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 example, we've discovered 5 warning signs for ClearView Wealth (1 is concerning!) that you should be aware of before investing here.

But note: ClearView Wealth 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 AU exchanges.

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This article by Simply Wall St is general in nature. 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. Thank you for reading.