Yahoo Finance Imagine Owning Prudential (LON:PRU) And Wondering If The 15% Share Price Slide Is Justified
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Prudential plc (LON:PRU) have tasted that bitter downside in the last year, as the share price dropped 15%. That's well bellow the market return of 3.3%. The silver lining (for longer term investors) is that the stock is still 5.2% higher than it was three years ago. The falls have accelerated recently, with the share price down 12% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
See our latest analysis for Prudential
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Even though the Prudential share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth. It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
In contrast, the 17% drop in revenue is a real concern. If the market sees the weak revenue as jeopardising EPS, that could explain the lower share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Prudential has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Prudential 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. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Prudential, it has a TSR of -12% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Prudential had a tough year, with a total loss of 12% (including dividends), against a market gain of about 3.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 3.3%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Prudential you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
But note: Prudential may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.
