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The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by APA Corporation (NASDAQ:APA) shareholders over the last year, as the share price declined 32%. That's well below the market return of 33%. Longer term investors have fared much better, since the share price is up 7.0% in three years. Furthermore, it's down 12% in about a quarter. That's not much fun for holders.
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 APA
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the unfortunate twelve months during which the APA share price fell, it actually saw its earnings per share (EPS) improve by 91%. Of course, the situation might betray previous over-optimism about growth.
It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
Revenue was pretty flat on last year, which isn't too bad. But the share price might be lower because the market expected a meaningful improvement, and got none.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
APA is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think APA will earn in the future (free analyst consensus estimates)
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of APA, it has a TSR of -30% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 33% in the last year, APA shareholders lost 30% (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 6% 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. Even so, be aware that APA is showing 4 warning signs in our investment analysis , and 2 of those are significant...