Despite delivering investors losses of 26% over the past 3 years, Austal (ASX:ASB) has been growing its earnings
Austal Limited (ASX:ASB) shareholders will doubtless be very grateful to see the share price up 32% in the last week. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 32% in the last three years, significantly under-performing the market.
While the stock has risen 32% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
See our latest analysis for Austal
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Austal actually managed to grow EPS by 23% 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). Alternatively, growth expectations may have been unreasonable in the past.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
We think that the revenue decline over three years, at a rate of 4.9% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Austal's balance sheet strength 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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Austal the TSR over the last 3 years was -26%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Austal shareholders have received a total shareholder return of 19% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For instance, we've identified 1 warning sign for Austal that you should be aware of.
We will like Austal better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.
