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The past three years for New Zealand Oil & Gas (NZSE:NZO) investors has not been profitable

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·3 min read
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As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term New Zealand Oil & Gas Limited (NZSE:NZO) shareholders have had that experience, with the share price dropping 29% in three years, versus a market decline of about 4.1%. Shareholders have had an even rougher run lately, with the share price down 15% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 6.2% in the same timeframe.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for New Zealand Oil & Gas

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, New Zealand Oil & Gas moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.

The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

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

earnings-and-revenue-growth
earnings-and-revenue-growth

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between New Zealand Oil & Gas' total shareholder return (TSR) and its share price return. 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. New Zealand Oil & Gas' TSR of was a loss of 25% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Although it hurts that New Zealand Oil & Gas returned a loss of 0.8% in the last twelve months, the broader market was actually worse, returning a loss of 11%. What is more upsetting is the 3% per annum loss investors have suffered over the last half decade. This sort of share price action isn't particularly encouraging, but at least the losses are slowing. 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. For example, we've discovered 4 warning signs for New Zealand Oil & Gas (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

But note: New Zealand Oil & Gas may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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