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 1300SMILES Limited (ASX:ONT) shareholders have had that experience, with the share price dropping 29% in three years, versus a market decline of about 1.9%. The falls have accelerated recently, with the share price down 17% in the last three months. Of course, this share price action may well have been influenced by the 25% decline in the broader market, throughout the period.
Check out our latest analysis for 1300SMILES
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate three years of share price decline, 1300SMILES actually saw its earnings per share (EPS) improve by 3.1% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. But it's possible a look at other metrics will be enlightening.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. It's good to see that 1300SMILES has increased its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for 1300SMILES in this interactive graph of future profit estimates.
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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, 1300SMILES's TSR for the last 3 years was -20%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.