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The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. So we wouldn't blame long term Palace Capital Plc (LON:PCA) shareholders for doubting their decision to hold, with the stock down 18% over a half decade.
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.
Check out our latest analysis for Palace Capital
Palace Capital wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually desire strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over five years, Palace Capital grew its revenue at 9.7% per year. That's a pretty good rate for a long time period. Shareholders have seen the share price fall at 3% per year, for five years: a poor performance. Those who bought back then clearly believed in stronger growth - and maybe even profits. There is always a big risk of losing money yourself when you buy shares in a company that loses money.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Palace Capital's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Palace Capital's TSR for the last 5 years was 6.6%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Palace Capital provided a TSR of 1.0% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 1.3% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Palace Capital better, we need to consider many other factors. Even so, be aware that Palace Capital is showing 3 warning signs in our investment analysis , and 2 of those are a bit concerning...