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Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Nexans S.A. (EPA:NEX) shareholders have had that experience, with the share price dropping 39% in three years, versus a market return of about 37%. And over the last year the share price fell 31%, so we doubt many shareholders are delighted. Even worse, it's down 18% in about a month, which isn't fun at all.
Check out our latest analysis for Nexans
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Nexans moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
With a rather small yield of just 1.1% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 3.0% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Nexans more closely, as sometimes stocks fall unfairly. This could present an opportunity.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
It is of course excellent to see how Nexans has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Nexans's financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Nexans, it has a TSR of -36% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.