Passive investing in an index fund is a good way to ensure that your own returns roughly match the broader market. But if you buy individual stocks, you can do better or worse than that. For example, the Apiam Animal Health Limited (ASX: AHX) the stock price is down 32% over the past year. This is significantly lower than the market decline of around 6.9%. The silver lining (for longer-term investors) is that the stock is still 25% higher than it was three years ago. The falls have accelerated recently, with the stock price dropping 20% in the past three months. However, one could say that the price was influenced by the general market, which is down 15% over the same period.
So let’s take a look and see if the long-term performance of the business has been in line with the progress of the underlying business.
To paraphrase Benjamin Graham: in the short term, the market is a voting machine, but in the long term, it is a weighing machine. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).
Unfortunately, Apiam Animal Health had to report a 22% drop in EPS over the past year. The 32% share price decline is actually greater than the EPS decline. So it seems the market was overconfident about the company a year ago.
The company’s earnings per share (over time) is shown in the image below (click to see exact numbers).
It is good to see that there has been significant insider buying over the past three months. This is a positive point. That said, we believe earnings and revenue growth trends are even more important factors to consider. It might be interesting to take a look at our free Apiam Animal Health Earnings, Revenue and Cash Flow Report.
What about dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price performance. TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. So for companies that pay a generous dividend, the TSR is often much higher than the stock price return. Note that for Apiam Animal Health the 1-year TSR was -29%, which is better than the stock price return mentioned above. And there’s no price guessing that dividend payouts largely explain the divergence!
A different perspective
We regret to inform you that Apiam Animal Health’s shareholding is down 29% over the year (even including dividends). Unfortunately, this is worse than the general market decline of 6.9%. However, it could simply be that the stock price was impacted by greater market jitters. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. Longer-term investors wouldn’t be so upset, as they would have gained 1.5%, every year, over five years. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take risks, for example – Apiam Animal Health has 6 warning signs we think you should know.
There are many other companies whose insiders buy shares. You probably do not want to miss this free list of growing companies insiders are buying.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on AU exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.