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For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Mitchell Services Limited (ASX:MSV) shareholders have had that experience, with the share price dropping 39% in three years, versus a market return of about 32%.
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 Mitchell Services
Mitchell Services isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last three years, Mitchell Services saw its revenue grow by 22% per year, compound. That is faster than most pre-profit companies. While its revenue increased, the share price dropped at a rate of 12% per year. That seems like an unlucky result for holders. It seems likely that actual growth fell short of shareholders' expectations. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Mitchell Services' total shareholder return (TSR) and its share price return. 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. Its history of dividend payouts mean that Mitchell Services' TSR, which was a 36% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 8.6% in the last year, Mitchell Services shareholders lost 13%. 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. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Mitchell Services better, we need to consider many other factors. For instance, we've identified 2 warning signs for Mitchell Services that you should be aware of.