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Introducing WPP (LON:WPP), The Stock That Dropped 40% In The Last Three Years

Simply Wall St

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While not a mind-blowing move, it is good to see that the WPP plc (LON:WPP) share price has gained 16% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 40% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

View our latest analysis for WPP

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

WPP saw its EPS decline at a compound rate of 1.8% per year, over the last three years. This reduction in EPS is slower than the 16% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 11.65.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

LSE:WPP Past and Future Earnings, July 8th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of WPP'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, WPP's TSR for the last 3 years was -31%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

WPP shareholders are down 12% for the year (even including dividends), but the market itself is up 3.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.2% over the last half decade. We realise that Buffett 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 businesses. 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 WPP by clicking this link.

WPP is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.