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Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Kogan.com Ltd (ASX:KGN) shareholders have had that experience, with the share price dropping 24% in three years, versus a market return of about 29%. Even worse, it's down 23% in about a month, which isn't fun at all.
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.
See our latest analysis for Kogan.com
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Kogan.com became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.
Arguably the revenue decline of 22% per year has people thinking Kogan.com is shrinking. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Kogan.com has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Kogan.com will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Kogan.com's TSR for the last 3 years was -22%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 14% in the last year, Kogan.com shareholders lost 16% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 0.5% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Kogan.com that you should be aware of before investing here.