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Imagine Owning Suncor Energy (TSE:SU) And Wondering If The 24% Share Price Slide Is Justified

Simply Wall St

Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Suncor Energy Inc. (TSE:SU) have tasted that bitter downside in the last year, as the share price dropped 24%. That's well bellow the market return of 1.2%. Longer term investors have fared much better, since the share price is up 17% in three years. The falls have accelerated recently, with the share price down 11% in the last three months.

See our latest analysis for Suncor Energy

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

During the unfortunate twelve months during which the Suncor Energy share price fell, it actually saw its earnings per share (EPS) improve by 4.9%. It could be that the share price was previously over-hyped. It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.

We don't see any weakness in the Suncor Energy's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.

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

TSX:SU Income Statement, July 22nd 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts

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 spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Suncor Energy, it has a TSR of -22% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Suncor Energy shareholders are down 22% for the year (even including dividends), but the market itself is up 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.0%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Suncor Energy by clicking this link.

Suncor Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 editorial-team@simplywallst.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.