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We think intelligent long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example, after five long years the Victrex plc (LON:VCT) share price is a whole 64% lower. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 44% in the last year. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
See our latest analysis for Victrex
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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Looking back five years, both Victrex's share price and EPS declined; the latter at a rate of 21% per year. This change in EPS is reasonably close to the 19% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. 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 Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Victrex the TSR over the last 5 years was -57%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Victrex had a tough year, with a total loss of 41% (including dividends), against a market gain of about 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% 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 Victrex better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Victrex (at least 1 which is concerning) , and understanding them should be part of your investment process.