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Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in KAP AG (ETR:IUR), since the last five years saw the share price fall 59%. And we doubt long term believers are the only worried holders, since the stock price has declined 31% over the last twelve months.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for KAP
KAP isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over five years, KAP grew its revenue at 0.7% per year. That's not a very high growth rate considering it doesn't make profits. It's likely this weak growth has contributed to an annualised return of 10% for the last five years. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. However, it's possible too many in the market will ignore it, and there may be an opportunity if it starts to recover down the track.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Dividend Lost
The share price return figures discussed above don't include the value of dividends paid previously, but the total shareholder return (TSR) does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 5 years, KAP generated a TSR of -50%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
KAP shareholders are down 31% for the year, but the market itself is up 16%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. We realise that Baron Rothschild 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 business. 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 - KAP has 1 warning sign we think you should be aware of.