Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Card Factory plc (LON:CARD) for five whole years - as the share price tanked 85%. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
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).
During five years of share price growth, Card Factory moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
Arguably, the revenue drop of 5.8% a year for half a decade suggests that the company can't grow in the long term. This has probably encouraged some shareholders to sell down the stock.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Card Factory in this interactive graph of future profit estimates.
What About The Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Card Factory's total shareholder return (TSR) and its share price return. 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. Dividends have been really beneficial for Card Factory shareholders, and that cash payout explains why its total shareholder loss of 81%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 5.6% in the twelve months, Card Factory shareholders did even worse, losing 16%. 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. However, the loss over the last year isn't as bad as the 13% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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.
Card Factory is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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