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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 its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term CDL Investments New Zealand Limited (NZSE:CDI) shareholders have had that experience, with the share price dropping 38% in three years, versus a market decline of about 4.9%.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for CDL Investments New Zealand
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 three years that the share price fell, CDL Investments New Zealand's earnings per share (EPS) dropped by 25% each year. This fall in the EPS is worse than the 15% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on CDL Investments New Zealand's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for CDL Investments New Zealand the TSR over the last 3 years was -29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in CDL Investments New Zealand had a tough year, with a total loss of 1.1% (including dividends), against a market gain of about 1.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Take risks, for example - CDL Investments New Zealand has 2 warning signs (and 1 which is potentially serious) we think you should know about.