Velocity Property Group Limited (ASX:VP7) shareholders will doubtless be very grateful to see the share price up 36% in the last quarter. But that doesn't change the fact that the returns over the last three years have been stomach churning. In that time the share price has melted like a snowball in the desert, down 85%. So it sure is nice to see a big of an improvement. The thing to think about is whether the business has really turned around.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Velocity Property Group saw its EPS decline at a compound rate of 34% per year, over the last three years. The recent extraordinary items made their mark on profits. The share price decline of 47% is actually steeper than the EPS slippage. 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).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Velocity Property Group's earnings, revenue and cash flow.
A Different Perspective
Over the last year, Velocity Property Group shareholders took a loss of 49%. In contrast the market gained about 19%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 47% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. 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. Consider risks, for instance. Every company has them, and we've spotted 4 warning signs for Velocity Property Group you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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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