It is easy to match the overall market performance by purchasing an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of underperformance. Investors Costa Group Holdings Limited (ASX: CGC) have tasted this bitter inconvenience in the past year, with the stock price dropping 45%. It is disappointing if we consider the market at -10%. To make matters worse, the three-year returns were also very disappointing (the stock price is 39% lower than three years ago).
See our latest analysis for Costa Group Holdings
Although the assumption of efficient markets continues to be taught by some, it has been proven that markets are overly reactive dynamic systems and that investors are not always rational. An imperfect but simple way of looking at the evolution of a company’s perception of the market is to compare the change in earnings per share (EPS) with the movement in the share price.
Costa Group Holdings fell into a deficit position during the year. Buyers no doubt think this is a temporary situation, but those with a nose for quality have a low tolerance for loss. We hope, for the benefit of shareholders, that the business will return to profit soon.
The image below shows how EPS has followed over time (if you click on the image you can see more details).
We consider it positive that insiders have made significant purchases in the past year. That said, most people see income and revenue growth trends as a more meaningful guide for the business. It might be worth taking a look at our free Costa Group Holdings earnings, revenues and cash flow report.
What about dividends?
In addition to measuring share price performance, investors should also consider Total Return to Shareholder (TSR). The TSR is a yield calculation which takes into account the value of cash dividends (assuming that any dividend received has been reinvested) and the calculated value of all discounted capital increases and spin-offs. So, for companies that pay a generous dividend, the TSR is often much higher than the share price return. We note that for Costa Group Holdings, the TSR over the last year was -42% which is better than the share price performance mentioned above. This is largely the result of his dividend payments!
A different perspective
The shareholders of Costa Group Holdings were down 42% over the year (including dividends), below market performance. The market lost about 10%, undoubtedly weighing on the share price. The 12% a year loss over three years is not as bad as the past twelve months, suggesting that the company has failed to convince the market that it has solved its problems. Although Baron Rothschild said “buy when there is blood on the streets, even if the blood is yours”, he also focuses on high quality stocks with solid prospects. While it is worth considering the different impacts that market conditions can have on the stock price, there are other, even more important factors. To this end, you should be aware of the 1 warning sign we spotted with Costa Group Holdings.
Costa Group Holdings is not the only insider in the purchase of shares. So take a look at that free list of growing companies with insider buying.
Please note that the market returns quoted in this article reflect the average market-weighted returns of the stocks that are currently trading on AU exchanges.
If you spot an error that merits correction, please contact the publisher at [email protected] This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell securities and does not take into account your objectives or your financial situation. Simply Wall St has no position in the stocks mentioned.
Our goal is to provide you with long-term targeted research analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive corporate announcements or qualitative material. Thanks for the reading.
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