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For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term The Reject Shop Limited (ASX:TRS) shareholders, since the share price is down 47% in the last three years, falling well short of the market return of around 22%. The more recent news is of little comfort, with the share price down 43% in a year.
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.
Check out our latest analysis for Reject Shop
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Reject Shop saw its EPS decline at a compound rate of 17% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 19% per year. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. In this case, it seems that the EPS is guiding the share price.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Reject Shop's key metrics by checking this interactive graph of Reject Shop's earnings, revenue and cash flow.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Reject Shop's 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. Dividends have been really beneficial for Reject Shop shareholders, and that cash payout explains why its total shareholder loss of 45%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
Reject Shop shareholders are down 40% for the year, but the market itself is up 21%. 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 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Reject Shop better, we need to consider many other factors. Even so, be aware that Reject Shop is showing 2 warning signs in our investment analysis , you should know about...