In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Life Settlement Assets PLC (LON:LSAA) shareholders have had that experience, with the share price dropping 21% in three years, versus a market decline of about 3.0%.
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.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Life Settlement Assets saw its EPS decline at a compound rate of 4.6% per year, over the last three years. This reduction in EPS is slower than the 8% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 11.65.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on Life Settlement Assets' 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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Life Settlement Assets, it has a TSR of -13% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We can sympathize with Life Settlement Assets about their 6.7% loss for the year ( including dividends), but the silver lining is that the broader market return was worse, at around -11%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's even worse than the annualised loss of 4% over the last three years. It should concern shareholders to see the pace of losses accelerate, and it makes us alert to the possibility that underlying business is not doing well. It's always interesting to track share price performance over the longer term. But to understand Life Settlement Assets better, we need to consider many other factors. For instance, we've identified 2 warning signs for Life Settlement Assets that you should be aware of.
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.
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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