Reflecting on Southern Cross Electrical Engineering's (ASX:SXE) Share Price Returns Over The Last Three Years
Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Southern Cross Electrical Engineering Limited (ASX:SXE) shareholders have had that experience, with the share price dropping 26% in three years, versus a market return of about 18%.
Check out our latest analysis for Southern Cross Electrical Engineering
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Southern Cross Electrical Engineering became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. We like that Southern Cross Electrical Engineering has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Southern Cross Electrical Engineering stock, you should check out this free report showing analyst profit forecasts.
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. We note that for Southern Cross Electrical Engineering the TSR over the last 3 years was -19%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that Southern Cross Electrical Engineering shareholders are down 18% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 8.1%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 8.1%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Southern Cross Electrical Engineering better, we need to consider many other factors. Take risks, for example - Southern Cross Electrical Engineering has 3 warning signs we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do 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 AU 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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