Generally speaking long term investing is the way to go. But that doesn’t mean long term investors can avoid big losses. For example, after five long years the Capitol Health Limited (ASX:CAJ) share price is a whole 63% lower. That is extremely sub-optimal, to say the least. We also note that the stock has performed poorly over the last year, with the share price down 30%. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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).
In the last half decade Capitol Health saw its share price fall as its EPS declined below zero. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. But we would generally expect a lower price, given the situation.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 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. We note that for Capitol Health the TSR over the last 5 years was -60%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Capitol Health shareholders are down 28% for the year (even including dividends), but the market itself is up 9.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like Capitol Health 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 firstname.lastname@example.org. 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.