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For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Fresenius SE & Co. KGaA (FRA:FRE) shareholders have had that experience, with the share price dropping 30% in three years, versus a market return of about 21%. And the ride hasn't got any smoother in recent times over the last year, with the price 30% lower in that time. It's down 2.6% in the last seven 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 unfortunate three years of share price decline, Fresenius SE KGaA actually saw its earnings per share (EPS) improve by 13% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
With a rather small yield of just 1.7% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 6.7% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worht worth investigating Fresenius SE KGaA further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Fresenius SE KGaA is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Fresenius SE KGaA the TSR over the last 3 years was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 3.7% in the twelve months, Fresenius SE KGaA shareholders did even worse, losing 29% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 5.8% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Is Fresenius SE KGaA cheap compared to other companies? These 3 valuation measures might help you decide.
We will like Fresenius SE KGaA better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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 firstname.lastname@example.org. 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.