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Did Changing Sentiment Drive Western Areas's (ASX:WSA) Share Price Down By 40%?

Simply Wall St

Western Areas Limited (ASX:WSA) shareholders will doubtless be very grateful to see the share price up 45% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 40%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Western Areas

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Western Areas became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.

The modest 0.7% dividend yield is unlikely to be guiding the market view of the stock. It could be that the revenue decline of 6.4% per year is viewed as evidence that Western Areas is shrinking. This has probably encouraged some shareholders to sell down the stock.

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

ASX:WSA Income Statement, September 4th 2019

Western Areas is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Western Areas in this interactive graph of future profit estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Western Areas the TSR over the last 5 years was -37%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Western Areas has rewarded shareholders with a total shareholder return of 32% in the last twelve months. And that does include the dividend. Notably the five-year annualised TSR loss of 8.7% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. If you would like to research Western Areas in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like Western Areas better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.