a2 Milk (NZSE:ATM) sheds NZ$435m, company earnings and investor returns have been trending downwards for past three years
Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of The a2 Milk Company Limited (NZSE:ATM) have had an unfortunate run in the last three years. Unfortunately, they have held through a 61% decline in the share price in that time. More recently, the share price has dropped a further 18% in a month.
If the past week is anything to go by, investor sentiment for a2 Milk isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
View our latest analysis for a2 Milk
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
a2 Milk saw its EPS decline at a compound rate of 25% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 27% per year. So it seems like sentiment towards the stock hasn't changed all that much over time. It seems like the share price is reflecting the declining earnings per share.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
We're pleased to report that a2 Milk shareholders have received a total shareholder return of 10% over one year. Notably the five-year annualised TSR loss of 9% 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. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of a2 Milk by clicking this link.
a2 Milk is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on New Zealander 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here