For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that’s been the case for longer term Eutelsat Communications S.A. (EPA:ETL) shareholders, since the share price is down 42% in the last three years, falling well short of the market return of around 40%. There was little comfort for shareholders in the last week as the price declined a further 1.9%.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Eutelsat Communications’s earnings per share (EPS) dropped by 10% each year. This reduction in EPS is slower than the 16% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Eutelsat Communications’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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Eutelsat Communications’s TSR for the last 3 years was -29%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Eutelsat Communications shareholders gained a total return of 4.7% during the year. Unfortunately this falls short of the market return. But at least that’s still a gain! Over five years the TSR has been a reduction of 1.8% per year, over five years. So this might be a sign the business has turned its fortunes around. Importantly, we haven’t analysed Eutelsat Communications’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
We will like Eutelsat Communications 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 FR 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 email@example.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.