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Ideally, your overall portfolio should beat the market average. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Sabre Insurance Group plc (LON:SBRE), since the last five years saw the share price fall 58%. And it's not just long term holders hurting, because the stock is down 30% in the last 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.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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).
Looking back five years, both Sabre Insurance Group's share price and EPS declined; the latter at a rate of 9.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. So it seems the market was too confident about the business, in the past. The low P/E ratio of 10.60 further reflects this reticence.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Sabre Insurance Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sabre Insurance Group's TSR for the last 5 years was -45%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 11% in the last year, Sabre Insurance Group shareholders lost 25% (even including dividends). 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 8% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Sabre Insurance Group is showing 1 warning sign in our investment analysis , you should know about...