Ideally, your overall portfolio should beat the market average. But in any portfolio, there will be mixed results between individual stocks. So we wouldn’t blame long term AB Electrolux (publ) (STO:ELUX B) shareholders for doubting their decision to hold, with the stock down 54% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 43% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. But this could be related to the weak market, which is down 18% in the same period.
If the past week is anything to go by, investor sentiment for AB Electrolux isn’t positive, so let’s see if there’s a mismatch between fundamentals and the share price.
Check out our latest analysis for AB Electrolux
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 AB Electrolux’s share price and EPS declined; the latter at a rate of 1.7% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 14% per year, over the period. So it seems the market was too confident about the business, in the past. The low P/E ratio of 9.18 further reflects this reticence.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of AB Electrolux, it has a TSR of -29% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 18% in the twelve months, AB Electrolux shareholders did even worse, losing 35% (even including dividends). 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 5% 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. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for AB Electrolux (of which 2 are a bit concerning!) you should know about.
AB Electrolux is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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.