Investing in stocks comes with the risk that the share price will fall. And unfortunately for South32 Limited (ASX:S32) shareholders, the stock is a lot lower today than it was a year ago. The share price is down a hefty 56% in that time. We note that it has not been easy for shareholders over three years, either; the share price is down 38% in that time. Shareholders have had an even rougher run lately, with the share price down 38% in the last 90 days. But this could be related to the weak market, which is down 30% in the same period.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
South32 fell to a loss making position during the year. While this may prove temporary, we'd consider it a negative, so it doesn't surprise us that the stock price is down. Of course, if the company can turn the situation around, investors will likely profit.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between South32's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for South32 shareholders, and that cash payout explains why its total shareholder loss of 54%, over the last year, isn't as bad as the share price return.
A Different Perspective
The last twelve months weren't great for South32 shares, which performed worse than the market, costing holders 54% , including dividends . The market shed around 20%, no doubt weighing on the stock price. The three-year loss of 11% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand South32 better, we need to consider many other factors. For instance, we've identified 1 warning sign for South32 that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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