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Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term S&U plc (LON:SUS) shareholders have had that experience, with the share price dropping 48% in three years, versus a market decline of about 10%. And more recent buyers are having a tough time too, with a drop of 37% in the last year. The falls have accelerated recently, with the share price down 28% in the last three months.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for S&U
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
During the three years that the share price fell, S&U's earnings per share (EPS) dropped by 9.9% each year. The share price decline of 20% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 8.91.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on S&U's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for S&U the TSR over the last 3 years was -38%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 9.8% in the last year, S&U shareholders lost 32% (even including dividends). 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand S&U better, we need to consider many other factors. Take risks, for example - S&U has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.