It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Transaction Capital Limited (JSE:TCP) investors who have held the stock for three years as it declined a whopping 95%. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 76%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 16% in the last three months. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
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.
View our latest analysis for Transaction Capital
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
Transaction Capital saw its share price decline over the three years in which its EPS also dropped, falling to a loss. Due to the loss, it's not easy to use EPS as a reliable guide to the business. However, we can say we'd expect to see a falling share price in this scenario.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Transaction Capital's key metrics by checking this interactive graph of Transaction Capital's earnings, revenue and cash flow.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Transaction Capital's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Transaction Capital shareholders, and that cash payout explains why its total shareholder loss of 84%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
Transaction Capital shareholders are down 32% for the year, but the market itself is up 22%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. To that end, you should learn about the 2 warning signs we've spotted with Transaction Capital (including 1 which is a bit unpleasant) .