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The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Cogeco Inc. (TSE:CGO) shareholders for doubting their decision to hold, with the stock down 27% over a half decade.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate half decade during which the share price slipped, Cogeco actually saw its earnings per share (EPS) improve by 18% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Cogeco has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Cogeco will earn in the future (free profit forecasts) .
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Cogeco, it has a TSR of -8.6% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.