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Imagine Owning A2B Australia (ASX:A2B) And Trying To Stomach The 85% Share Price Drop

Simply Wall St

A2B Australia Limited (ASX:A2B) shareholders should be happy to see the share price up 18% in the last month. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Like a ship taking on water, the share price has sunk 85% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The real question is whether the business can leave its past behind and improve itself over the years ahead.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for A2B Australia

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

A2B Australia became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

ASX:A2B Income Statement May 23rd 2020

This free interactive report on A2B Australia's balance sheet strength is a great place to start, if you want to investigate the stock further.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of A2B Australia, it has a TSR of -74% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that A2B Australia shareholders are down 56% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 12%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% over the last half decade. We realise that Baron Rothschild 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 business. It's always interesting to track share price performance over the longer term. But to understand A2B Australia better, we need to consider many other factors. For instance, we've identified 4 warning signs for A2B Australia (1 is a bit unpleasant) that you should be aware of.

If you are like me, then you will 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 AU exchanges.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.