One of the frustrations of investing is when a stock goes down. But when the market is down, you’re bound to have some losers. While the Genesis Energy Limited (NZSE:GNE) share price is down 26% in the last three years, the total return to shareholders (which includes dividends) was -8.9%. That’s better than the market which declined 10% over the last three years.
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.
View our latest analysis for Genesis Energy
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Although the share price is down over three years, Genesis Energy actually managed to grow EPS by 60% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
Given the healthiness of the dividend payments, we doubt that they’ve concerned the market. However, the weak share price might be related to the fact revenue has been disappearing at a rate of 3.1% each year, over three years. This could have some investors worried about the longer term growth potential (or lack thereof).
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Genesis Energy in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Genesis Energy the TSR over the last 3 years was -8.9%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Genesis Energy had a tough year, with a total loss of 2.5% (including dividends), against a market gain of about 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. To that end, you should learn about the 3 warning signs we’ve spotted with Genesis Energy (including 1 which is significant) .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on New Zealander exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Read More: Genesis Energy (NZSE:GNE) shareholders have endured a 8.9% loss from investing