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As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Begbies Traynor Group plc (LON:BEG) shareholders, since the share price is down 14% in the last three years, falling well short of the market return of around 15%. On the other hand, we note it's up 9.7% in about a month.
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.
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 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).
Although the share price is down over three years, Begbies Traynor Group actually managed to grow EPS by 148% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics. So we'll have to take a look at other metrics to try to understand the price action.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. It's good to see that Begbies Traynor Group has increased its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
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 Begbies Traynor Group in this interactive graph of future profit estimates .
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Begbies Traynor Group the TSR over the last 3 years was -4.6%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!