Pendal Group (ASX:PDL) shareholders have endured a 37% loss from investing in the stock five years ago
The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Pendal Group Limited (ASX:PDL) shareholders for doubting their decision to hold, with the stock down 52% over a half decade. The falls have accelerated recently, with the share price down 19% in the last three months.
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.
Check out our latest analysis for Pendal Group
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.
During the five years over which the share price declined, Pendal Group's earnings per share (EPS) dropped by 3.1% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 14% per year, over the period. So it seems the market was too confident about the business, in the past. The low P/E ratio of 10.15 further reflects this reticence.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Pendal Group has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Pendal Group's TSR for the last 5 years was -37%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 8.6% in the last year, Pendal Group shareholders lost 18% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Take risks, for example - Pendal Group has 3 warning signs we think you should be aware of.
Of course Pendal Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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.
