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For many investors, the main point of stock picking is to generate higher returns than the overall market. 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 Aptitude Software Group plc (LON:APTD) shareholders have had that experience, with the share price dropping 50% in three years, versus a market return of about 16%.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Aptitude Software Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Aptitude Software Group's earnings per share (EPS) dropped by 14% each year. The share price decline of 20% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Aptitude Software Group, it has a TSR of -47% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Aptitude Software Group shareholders have received a total shareholder return of 22% over one year. And that does include the dividend. Notably the five-year annualised TSR loss of 6% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. Before deciding if you like the current share price, check how Aptitude Software Group scores on these 3 valuation metrics.