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As an investor its worth striving to ensure your overall portfolio beats the market average. 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 Newmont Corporation (NYSE:NEM) shareholders have had that experience, with the share price dropping 38% in three years, versus a market return of about 22%. The falls have accelerated recently, with the share price down 32% in the last three months.
With the stock having lost 11% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
Check out our latest analysis for Newmont
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
We know that Newmont has been profitable in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. Other metrics might give us a better handle on how its value is changing over time.
We note that, in three years, revenue has actually grown at a 7.1% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Newmont more closely, as sometimes stocks fall unfairly. This could present an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Newmont stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Newmont the TSR over the last 3 years was -31%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!