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. We regret to report that long term Titon Holdings Plc (LON:TON) shareholders have had that experience, with the share price dropping 44% in three years, versus a market return of about -9.6%. And the ride hasn't got any smoother in recent times over the last year, with the price 38% lower in that time. In the last ninety days we've seen the share price slide 45%. However, one could argue that the price has been influenced by the general market, which is down 25% in the same timeframe.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Titon Holdings saw its EPS decline at a compound rate of 5.5% per year, over the last three years. The share price decline of 17% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 5.45.
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Titon Holdings the TSR over the last 3 years was -39%, 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
We regret to report that Titon Holdings shareholders are down 36% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 14%. 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. On the bright side, long term shareholders have made money, with a gain of 3.9% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 4 warning signs we've spotted with Titon Holdings (including 2 which is don't sit too well with us) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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.
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