Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Qantas Airways Limited (ASX:QAN) shareholders, since the share price is down 44% in the last three years, falling well short of the market return of around 17%. The more recent news is of little comfort, with the share price down 44% in a year. Unfortunately the share price momentum is still quite negative, with prices down 16% in thirty days.
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.
Although the share price is down over three years, Qantas Airways actually managed to grow EPS by 8.1% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
Revenue is actually up 5.0% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Qantas Airways further; while we may be missing something on this analysis, there might also be an opportunity.
The company's revenue and earnings (over time) are 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. You can see what analysts are predicting for Qantas Airways in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
We've already covered Qantas Airways' share price action, but we should also mention its total shareholder return (TSR). 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. Qantas Airways' TSR of was a loss of 39% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
We regret to report that Qantas Airways shareholders are down 42% for the year. Unfortunately, that's worse than the broader market decline of 8.7%. 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 1.3% 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. It's always interesting to track share price performance over the longer term. But to understand Qantas Airways better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Qantas Airways .
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
This article by Simply Wall St is general in nature. 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.
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