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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term A2B Australia Limited (ASX:A2B) shareholders for doubting their decision to hold, with the stock down 56% over a half decade. And some of the more recent buyers are probably worried, too, with the stock falling 28% in the last year. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.
View our latest analysis for A2B Australia
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Looking back five years, both A2B Australia's share price and EPS declined; the latter at a rate of 33% per year. This fall in the EPS is worse than the 15% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that A2B Australia has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, A2B Australia's TSR for the last 5 years was -28%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 11% in the last year, A2B Australia shareholders lost 26% (even including dividends). 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 6.3% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on A2B Australia it might be wise to click here to see if insiders have been buying or selling shares.