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Positive earnings growth hasn't been enough to get Naspers (JSE:NPN) shareholders a favorable return over the last three years

Naspers Limited (JSE:NPN) shareholders should be happy to see the share price up 10% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 16% in the last three years, significantly under-performing the market.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

See our latest analysis for Naspers

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

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Although the share price is down over three years, Naspers actually managed to grow EPS by 52% 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.

With a rather small yield of just 0.3% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 8.0% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Naspers further; while we may be missing something on this analysis, there might also be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

It is of course excellent to see how Naspers has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Naspers stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market lost about 3.3% in the twelve months, Naspers shareholders did even worse, losing 12% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Case in point: We've spotted 3 warning signs for Naspers you should be aware of, and 1 of them makes us a bit uncomfortable.

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 South African 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.