In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in SBS Transit Ltd (SGX:S61), since the last five years saw the share price fall 36%.
So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.
View our latest analysis for SBS Transit
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Looking back five years, both SBS Transit’s share price and EPS declined; the latter at a rate of 3.0% per year. This reduction in EPS is less than the 9% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 11.47.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on SBS Transit’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for SBS Transit the TSR over the last 5 years was -24%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
SBS Transit provided a TSR of 1.7% over the last twelve months. But that was short of the market average. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 4% endured over half a decade. It could well be that the business is stabilizing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with SBS Transit (at least 1 which is significant) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Singaporean 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.
