Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Ashmore Group PLC (LON:ASHM) have had an unfortunate run in the last three years. So they might be feeling emotional about the 60% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 48% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 15% in thirty days. But this could be related to poor market conditions -- stocks are down 7.4% in the same time.
Since Ashmore Group has shed UK£102m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Although the share price is down over three years, Ashmore Group actually managed to grow EPS by 13% 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.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Ashmore Group has maintained its top line over three years, so we doubt that has shareholders worried. A closer look at revenue and profit trends might yield insights.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Ashmore Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Ashmore Group will earn in the future (free analyst consensus estimates)
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Ashmore Group, it has a TSR of -54% for the last 3 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 7.1% in the twelve months, Ashmore Group shareholders did even worse, losing 45% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ashmore Group , and understanding them should be part of your investment process.
If you are like me, then you will 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 GB 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.
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