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As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Nine Entertainment Co. Holdings Limited (ASX:NEC) shareholders have had that experience, with the share price dropping 47% in three years, versus a market return of about 23%. And over the last year the share price fell 25%, so we doubt many shareholders are delighted. Furthermore, it's down 21% in about a quarter. That's not much fun for holders.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
See our latest analysis for Nine Entertainment Holdings
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
During five years of share price growth, Nine Entertainment Holdings moved from a loss to profitability. 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.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Nine Entertainment Holdings has actually grown its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Nine Entertainment Holdings is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Nine Entertainment Holdings stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Nine Entertainment Holdings, it has a TSR of -38% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!