Balwin Properties (JSE:BWN) investors are sitting on a loss of 44% if they invested five years ago

In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn’t blame long term Balwin Properties Limited (JSE:BWN) shareholders for doubting their decision to hold, with the stock down 58% over a half decade. And some of the more recent buyers are probably worried, too, with the stock falling 36% in the last year. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days. Of course, this share price action may well have been influenced by the 14% decline in the broader market, throughout the period.

Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Balwin Properties

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

Looking back five years, both Balwin Properties’ share price and EPS declined; the latter at a rate of 11% per year. This reduction in EPS is less than the 16% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 3.50 further reflects this reticence.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Balwin Properties’ TSR for the last 5 years was -44%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Balwin Properties shareholders are down 32% for the year (even including dividends), but the market itself is up 2.1%. 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 7% per year over five years. 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. 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 Balwin Properties (of which 2 are significant!) you should know about.

But note: Balwin Properties may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on ZA 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.