Yahoo Finance Manawa Energy (NZSE:MNW) investors are sitting on a loss of 35% if they invested three years ago
For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Manawa Energy Limited (NZSE:MNW) shareholders have had that experience, with the share price dropping 46% in three years, versus a market decline of about 11%.
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.
See our latest analysis for Manawa Energy
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 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).
Although the share price is down over three years, Manawa Energy actually managed to grow EPS by 9.5% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. 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 9.4% 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 graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Manawa Energy has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Manawa Energy, it has a TSR of -35% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Manawa Energy had a tough year, with a total loss of 11% (including dividends), against a market gain of about 0.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.0% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Manawa Energy (1 is a bit concerning!) that you should be aware of before investing here.
We will like Manawa Energy 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 New Zealander 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.
