Yahoo Finance Investors in Western Union (NYSE:WU) have unfortunately lost 36% over the last three years
For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term The Western Union Company (NYSE:WU) shareholders, since the share price is down 45% in the last three years, falling well short of the market return of around 53%. And more recent buyers are having a tough time too, with a drop of 42% in the last year. The falls have accelerated recently, with the share price down 22% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Western Union
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years that the share price fell, Western Union's earnings per share (EPS) dropped by 0.6% each year. The share price decline of 18% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 4.54.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Western Union has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Western Union will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Western Union, it has a TSR of -36% for the last 3 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 9.6% in the twelve months, Western Union shareholders did even worse, losing 37% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For example, we've discovered 4 warning signs for Western Union (2 don't sit too well with us!) that you should be aware of before investing here.
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 American 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.
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