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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 every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term KAP AG (ETR:IUR) shareholders for doubting their decision to hold, with the stock down 57% over a half decade. We also note that the stock has performed poorly over the last year, with the share price down 38%.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for KAP
Because KAP made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over five years, KAP grew its revenue at 1.8% per year. That's far from impressive given all the money it is losing. This lacklustre growth has no doubt fueled the loss of 9% per year, in that time. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term).
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at KAP's financial health with this free report on its balance sheet.
What About The Total Shareholder Return (TSR)?
We've already covered KAP's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that KAP's TSR, which was a 47% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
KAP shareholders are down 38% for the year, but the market itself is up 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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.