It's normal to be annoyed when stock you own has a declining share price. But often it is not a reflection of the fundamental business performance. The Patria Investments Limited (NASDAQ:PAX) is down 11% over a year, but the total shareholder return is -6.1% once you include the dividend. And that total return actually beats the market decline of 12%. Because Patria Investments hasn't been listed for many years, the market is still learning about how the business performs.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
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).
During the unfortunate twelve months during which the Patria Investments share price fell, it actually saw its earnings per share (EPS) improve by 64%. Of course, the situation might betray previous over-optimism about growth.
The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.
Patria Investments' dividend seems healthy to us, so we doubt that the yield is a concern for the market. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Patria Investments has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Patria Investments stock, you should check out this FREE detailed report on its balance sheet.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Patria Investments' TSR for the last 1 year was -6.1%, 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
Given that the broader market dropped 12% over the year, the fact that Patria Investments shareholders were down 6.1% isn't so bad. Unfortunately for shareholders, the share price momentum hasn't improved much with the stock down 4.9% in around 90 days. This doesn't look great to us, but it is possible that the market is over-reacting to prior disappointment. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Patria Investments (of which 1 shouldn't be ignored!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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