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Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Southern Cross Electrical Engineering Limited (ASX:SXE) shareholders have had that experience, with the share price dropping 26% in three years, versus a market return of about 18%.
Check out our latest analysis for Southern Cross Electrical Engineering
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Southern Cross Electrical Engineering became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. We like that Southern Cross Electrical Engineering has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Southern Cross Electrical Engineering 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Southern Cross Electrical Engineering the TSR over the last 3 years was -19%, 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!