TXT e-solutions S.p.A. (BIT:TXT) shareholders should be happy to see the share price up 28% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 30% in the last three years, significantly under-performing the market.
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 the three years that the share price fell, TXT e-solutions's earnings per share (EPS) dropped by 50% each year. This was, in part, due to extraordinary items impacting earnings. In comparison the 11% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. This positive sentiment is also reflected in the generous P/E ratio of 295.35.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on TXT e-solutions's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between TXT e-solutions's total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for TXT e-solutions shareholders, and that cash payout explains why its total shareholder loss of 18%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
While it's certainly disappointing to see that TXT e-solutions shares lost 11% throughout the year, that wasn't as bad as the market loss of 17%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 3.2% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. Case in point: We've spotted 5 warning signs for TXT e-solutions you should be aware of, and 1 of them is concerning.
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 IT exchanges.
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