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. We regret to report that long term AYO Technology Solutions Limited (JSE:AYO) shareholders have had that experience, with the share price dropping 57% in three years, versus a market return of about 20%. Shareholders have had an even rougher run lately, with the share price down 42% in the last 90 days.
If the past week is anything to go by, investor sentiment for AYO Technology Solutions isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Check out our latest analysis for AYO Technology Solutions
Because AYO Technology Solutions made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last three years, AYO Technology Solutions saw its revenue grow by 2.8% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. This uninspiring revenue growth has no doubt helped send the share price lower; it dropped 16% during the period. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). After all, growing a business isn't easy, and the process will not always be smooth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at AYO Technology Solutions' financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for AYO Technology Solutions the TSR over the last 3 years was -22%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Over the last year, AYO Technology Solutions shareholders took a loss of 1.0%, including dividends. In contrast the market gained about 2.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn't pretty, with investment losses running at 7% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for AYO Technology Solutions (of which 3 are a bit unpleasant!) you should know about.