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Some K3 Business Technology Group (LON:KBT) Shareholders Are Down 40%

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term K3 Business Technology Group plc (LON:KBT) shareholders have had that experience, with the share price dropping 40% in three years, versus a market return of about 16%.

Check out our latest analysis for K3 Business Technology Group

K3 Business Technology Group isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

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In the last three years K3 Business Technology Group saw its revenue shrink by 3.6% per year. That's not what investors generally want to see. The annual decline of 16% per year in that period has clearly disappointed holders. That makes sense given the lack of either profits or revenue growth. Of course, sentiment could become too negative, and the company may actually be making progress to profitability.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

AIM:KBT Income Statement, October 4th 2019
AIM:KBT Income Statement, October 4th 2019

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling K3 Business Technology Group stock, you should check out this free report showing analyst profit forecasts.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between K3 Business Technology Group's total shareholder return (TSR) and its share price return. 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. Its history of dividend payouts mean that K3 Business Technology Group's TSR, which was a 39% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 0.06% in the twelve months, K3 Business Technology Group shareholders did even worse, losing 11% (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 0.6% per year over five years. We realise that Buffett 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 businesses. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of K3 Business Technology Group by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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.