We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Silverlake Axis Ltd (SGX:5CP) share price dropped 63% over five years. That is extremely sub-optimal, to say the least. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.
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. 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.
During the five years over which the share price declined, Silverlake Axis's earnings per share (EPS) dropped by 1.5% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 18% per year, over the period. This implies that the market is more cautious about the business these days.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Silverlake Axis'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 or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Silverlake Axis's TSR for the last 5 years was -52%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Silverlake Axis shareholders gained a total return of 1.3% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 14% endured over half a decade. So this might be a sign the business has turned its fortunes around. 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. Be aware that Silverlake Axis is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG 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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