Yahoo Finance Some Royal Mail (LON:RMG) Shareholders Have Copped A Big 52% Share Price Drop
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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Royal Mail plc (LON:RMG) have tasted that bitter downside in the last year, as the share price dropped 52%. That's disappointing when you consider the market returned 8.0%. Notably, shareholders had a tough run over the longer term, too, with a drop of 46% in the last three years. On the other hand the share price has bounced 9.2% over the last week.
View our latest analysis for Royal Mail
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unhappily, Royal Mail had to report a 74% decline in EPS over the last year. This fall in the EPS is significantly worse than the 52% the share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Royal Mail's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Royal Mail, it has a TSR of -49% for the last year. 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
Investors in Royal Mail had a tough year, with a total loss of 49% (including dividends), against a market gain of about 8.0%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8.5% over the last half decade. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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 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.
