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As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Gesco SE (ETR:GSC1) shareholders, since the share price is down 44% in the last three years, falling well short of the market decline of around 7.5%. And the ride hasn't got any smoother in recent times over the last year, with the price 33% lower in that time. The falls have accelerated recently, with the share price down 16% in the last three months.
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 Gesco
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During the three years that the share price fell, Gesco's earnings per share (EPS) dropped by 20% each year. This fall in EPS isn't far from the rate of share price decline, which was 18% per year. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. Rather, the share price has approximately tracked EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Gesco's key metrics by checking this interactive graph of Gesco's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Gesco's TSR for the last 3 years was -38%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Gesco had a tough year, with a total loss of 32% (including dividends), against a market gain of about 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For instance, we've identified 3 warning signs for Gesco that you should be aware of.