Strong week for Pactiv Evergreen (NASDAQ:PTVE) shareholders doesn't alleviate pain of one-year loss
It's normal to be annoyed when stock you own has a declining share price. But often it is not a reflection of the fundamental business performance. The Pactiv Evergreen Inc. (NASDAQ:PTVE) is down 27% over a year, but the total shareholder return is -24% once you include the dividend. That's better than the market which declined 25% over the last year. Pactiv Evergreen may have better days ahead, of course; we've only looked at a one year period.
While the stock has risen 4.0% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
See our latest analysis for Pactiv Evergreen
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. 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.
Pactiv Evergreen managed to increase earnings per share from a loss to a profit, over the last 12 months.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. But we may find different metrics more enlightening.
Pactiv Evergreen's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Pactiv Evergreen will earn in the future (free 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. As it happens, Pactiv Evergreen's TSR for the last 1 year was -24%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Having lost 24% over the year, including dividends, Pactiv Evergreen has generated a return within the same ballpark as the broader market. Unfortunately, last year's performance may indicate unresolved challenges, and the share price has continued to drop, down 4.5% over the last three months. It's not uncommon to see companies without long term track records disappoint shareholders. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Pactiv Evergreen (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
Pactiv Evergreen is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
