The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Duratec Limited (ASX:DUR) share price is down 10% in the last year. That contrasts poorly with the market decline of 2.4%. Duratec may have better days ahead, of course; we've only looked at a one year period.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Unfortunately Duratec reported an EPS drop of 76% for the last year. This fall in the EPS is significantly worse than the 10% the share price fall. It may have been that the weak EPS was not as bad as some had feared.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Duratec's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Duratec's TSR for the last 1 year was -6.0%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We doubt Duratec shareholders are happy with the loss of 6.0% over twelve months (even including dividends). That falls short of the market, which lost 2.4%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. Putting aside the last twelve months, it's good to see the share price has rebounded by 4.1%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). It's always interesting to track share price performance over the longer term. But to understand Duratec better, we need to consider many other factors. For example, we've discovered 4 warning signs for Duratec (1 shouldn't be ignored!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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