Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Imagine if you held Centrica plc (LON:CNA) for half a decade as the share price tanked 82%. And it's not just long term holders hurting, because the stock is down 43% in the last year. The falls have accelerated recently, with the share price down 14% in the last three months.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
View our latest analysis for Centrica
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
We know that Centrica has been profitable in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. Other metrics might give us a better handle on how its value is changing over time.
It could be that the revenue decline of 5.4% per year is viewed as evidence that Centrica is shrinking. That could explain the weak share price.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Centrica stock, you should check out this free report showing analyst profit forecasts.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Centrica's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Centrica shareholders, and that cash payout explains why its total shareholder loss of 75%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 12% in the twelve months, Centrica shareholders did even worse, losing 43%. 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 12% 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 is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Centrica is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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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