Yahoo Finance Introducing Deutsche Telekom (ETR:DTE), The Stock That Dropped 26% In The Last Five Years
Since the legendary Jack Bogle pioneered the sector, you can now buy low cost index funds to achieve an approximation of market returns. A talented investor can beat the market with a diversified portfolio, but even then, some stocks will under-perform. Shareholders of Deutsche Telekom AG (ETR:DTE) have lost -26% in the last five years, falling short of the market decline of around 8.9%. Furthermore, it's down 15% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 19% in the same period.
See our latest analysis for Deutsche Telekom
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).
During the unfortunate half decade during which the share price slipped, Deutsche Telekom actually saw its earnings per share (EPS) improve by 4.5% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. It's not immediately clear to us why the stock price is down but further research might provide some answers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Deutsche Telekom is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Deutsche Telekom, it has a TSR of -10% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 11% in the twelve months, Deutsche Telekom shareholders did even worse, losing 16% (even including dividends) . 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2.1% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Deutsche Telekom you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE exchanges.
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.
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. Thank you for reading.
