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As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Peoplein Limited (ASX:PPE), who have seen the share price tank a massive 78% over a three year period. That would be a disturbing experience. And over the last year the share price fell 21%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 19% in the last three months.
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.
We've discovered 2 warning signs about Peoplein. View them for free.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the three years that the share price declined, Peoplein's earnings per share (EPS) dropped significantly, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Peoplein's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Peoplein shareholders, and that cash payout explains why its total shareholder loss of 76%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
Investors in Peoplein had a tough year, with a total loss of 21%, against a market gain of about 9.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. Case in point: We've spotted 2 warning signs for Peoplein you should be aware of.