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Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. To wit, the Nordic American Tankers Limited (NYSE:NAT) share price managed to fall 76% over five long years. That is extremely sub-optimal, to say the least. There was little comfort for shareholders in the last week as the price declined a further 2.0%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, Nordic American Tankers moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. On top of that, revenue has declined by 5.7% per year over the half decade; that could be a red flag for some investors.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Nordic American Tankers has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Nordic American Tankers stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Nordic American Tankers' TSR for the last 5 years was -65%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Nordic American Tankers shareholders gained a total return of 5.7% during the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 11% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Nordic American Tankers better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Nordic American Tankers (at least 3 which are a bit unpleasant) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. 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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