In This Article:
Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. So we wouldn't blame long term Caribbean Utilities Company, Ltd. (TSE:CUP.U) shareholders for doubting their decision to hold, with the stock down 22% over a half decade.
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.
View our latest analysis for Caribbean Utilities Company
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 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.
While the share price declined over five years, Caribbean Utilities Company actually managed to increase EPS by an average of 0.8% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
With EPS gaining and a declining share price, one would suggest the market is cooling on its view of the company. Generally speaking, though, if the company can keep growing EPS then the share price will eventually follow.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Caribbean Utilities Company'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. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Caribbean Utilities Company the TSR over the last 5 years was 0.7%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Caribbean Utilities Company's TSR for the year was broadly in line with the market average, at 23%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 0.1%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Caribbean Utilities Company better, we need to consider many other factors. Take risks, for example - Caribbean Utilities Company has 2 warning signs (and 1 which is potentially serious) we think you should know about.