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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in SIA Engineering Company Limited (SGX:S59), since the last five years saw the share price fall 32%. Shareholders have had an even rougher run lately, with the share price down 10% in the last 90 days.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Check out our latest analysis for SIA Engineering
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.
Looking back five years, both SIA Engineering's share price and EPS declined; the latter at a rate of 21% per year. This fall in the EPS is worse than the 7% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around. With a P/E ratio of 45.73, it's fair to say the market sees a brighter future for the business.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on SIA Engineering's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between SIA Engineering's total shareholder return (TSR) and its share price change, which we've covered above. 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. SIA Engineering's TSR of was a loss of 24% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
SIA Engineering shareholders are down 17% for the year, but the market itself is up 0.02%. 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 4% 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. For example, we've discovered 2 warning signs for SIA Engineering that you should be aware of before investing here.