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Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term AVJennings Limited (ASX:AVJ) shareholders have had that experience, with the share price dropping 51% in three years, versus a market return of about 22%.
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 AVJennings
Given that AVJennings only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last three years AVJennings saw its revenue shrink by 1.1% per year. That is not a good result. The share price decline of 15% compound, over three years, is understandable given the company doesn't have profits to boast of, and revenue is moving in the wrong direction. Of course, it's the future that will determine whether today's price is a good one. We'd be pretty wary of this one until it makes a profit, because we don't specialize in finding turnaround situations.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Take a more thorough look at AVJennings' financial health with this free report on its balance sheet.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between AVJennings' total shareholder return (TSR) and its share price change, which we've covered above. 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 AVJennings' TSR, which was a 39% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 22% in the last year, AVJennings shareholders lost 14%. 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 6% 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. 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 AVJennings is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...