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Ideally, your overall portfolio should beat the market average. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Sime Darby Plantation Berhad (KLSE:SIMEPLT) shareholders for doubting their decision to hold, with the stock down 22% over a half decade.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Sime Darby Plantation Berhad
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, Sime Darby Plantation Berhad's earnings per share (EPS) dropped by 12% each year. This fall in the EPS is worse than the 5% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Sime Darby Plantation Berhad has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Sime Darby Plantation Berhad's financial health with this free report on its balance sheet.
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 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Sime Darby Plantation Berhad the TSR over the last 5 years was -12%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Sime Darby Plantation Berhad shareholders are down 14% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 4.5%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% 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. It's always interesting to track share price performance over the longer term. But to understand Sime Darby Plantation Berhad better, we need to consider many other factors. Take risks, for example - Sime Darby Plantation Berhad has 2 warning signs (and 1 which is significant) we think you should know about.