For many investors, the primary goal in stock selection is to generate returns higher than the general market. But it’s almost certain that you’ll occasionally buy stocks that fall short of the market’s average return. Unfortunately, this is the case in the long run Kawan Food Berhad (KLSE:KAWAN) shareholders as the share price has fallen 23% over the past three years, well below the market’s decline of around 9.7%.
Now let’s look at the company’s fundamentals and see if long-term shareholder returns match the performance of the core business.
Check out our latest analysis on Kawan Food Berhad
It cannot be denied that markets are sometimes efficient, but prices do not always reflect underlying business results. An imperfect but simple way to gauge how the market’s perception of a company has changed is to compare the change in earnings per share (EPS) to the movement of the stock price.
Although the share price has been declining for three years, Kawan Food Berhad has actually managed to increase its earnings per share by 12% annually during this time. Given the reaction of stock prices, it can be assumed that EPS is not a good guide to the performance of the business during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth looking at other metrics.
With a fairly small yield of just 1.9%, we doubt the share price is based on the dividend. Revenue is actually up 7.3% over the three years, so the share price decline doesn’t seem to be driven by revenue either. This analysis is only superficial, but it might be worth taking a closer look at Kawan Food Berhad as the stock sometimes falls unfairly. This could be an opportunity.
The image below shows how revenue and earnings have tracked over time (if you click on the image, you can see more details).
If you are thinking of buying or selling Kawan Food Berhad shares, you should check this out FREE a detailed statement of its balance sheet.
What about dividends?
It is important to consider total shareholder returns, as well as share price returns, for any given stock. TSR is a return calculation that takes into account the value of cash dividends (assuming any dividend received is reinvested) and the estimated value of all discounted capital raisings and spin-offs. Arguably, TSR gives a more comprehensive picture of the returns generated by a stock. We note that for Kawan Food Berhad, the TSR over the last 3 years was -18%, which is better than the share price return mentioned above. This is largely a result of paying dividends!
A different point of view
While the broader market has gained around 9.9% over the past year, Kawan Food Berhad shareholders have lost 16% (even including dividends). Keep in mind, however, that even the best stocks will sometimes underperform the market over a twelve-month period. Longer-term investors wouldn’t be as upset, as they would have made 1.4% each year, over five years. A recent selloff may be a possibility, so it may be worth checking the fundamentals for signs of a longer-term uptrend. Before forming your opinion on Kawan Food Berhad, you may consider these 3 evaluation metrics.
If you’d rather check out another company – one with potentially better financials – then don’t miss this one Free of charge a list of companies that have proven they can grow their revenue.
Please note that the market returns quoted in this article reflect the weighted average market returns of stocks currently trading on the Malaysian stock exchanges.
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.