Western Areas'(ASX:WSA) Share Price Is Down 18% Over The Past Five Years.
Western Areas Limited (ASX:WSA) shareholders should be happy to see the share price up 15% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 18%, which falls well short of the return you could get by buying an index fund.
Check out our latest analysis for Western Areas
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. 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.
During five years of share price growth, Western Areas moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
We don't think that the 0.8% is big factor in the share price, since it's quite small, as dividends go. The revenue decline of 1.9% isn't too bad. But if the market expected durable top line growth, then that could explain the share price weakness.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Western Areas is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Western Areas will earn in the future (free analyst consensus estimates)
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Western Areas' TSR for the last 5 years was -15%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Western Areas has rewarded shareholders with a total shareholder return of 18% in the last twelve months. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 2.8% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. If you would like to research Western Areas in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
