Yahoo Finance Perpetual (ASX:PPT) shareholders have endured a 34% loss from investing in the stock five years ago
Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Perpetual Limited (ASX:PPT), since the last five years saw the share price fall 50%. And some of the more recent buyers are probably worried, too, with the stock falling 39% in the last year. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Perpetual
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Looking back five years, both Perpetual's share price and EPS declined; the latter at a rate of 9.9% per year. This reduction in EPS is less than the 13% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Perpetual's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Perpetual the TSR over the last 5 years was -34%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Perpetual shareholders are down 35% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.6%. 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 6% 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. Even so, be aware that Perpetual is showing 1 warning sign in our investment analysis , you should know about...
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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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