Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Investors in OceanaGold Corporation (TSE:OGC) have tasted that bitter downside in the last year, as the share price dropped 47%. That’s well bellow the market return of 14%. To make matters worse, the returns over three years have also been really disappointing (the share price is 42% lower than three years ago). Shareholders have had an even rougher run lately, with the share price down 19% in the last 90 days.
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).
Unfortunately OceanaGold reported an EPS drop of 92% for the last year. This fall in the EPS is significantly worse than the 47% the share price fall. It may have been that the weak EPS was not as bad as some had feared. With a P/E ratio of 69.73, it’s fair to say the market sees an EPS rebound on the cards.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on OceanaGold’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’ve already covered OceanaGold’s share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that OceanaGold’s TSR, which was a 47% drop over the last year, was not as bad as the share price return.
A Different Perspective
OceanaGold shareholders are down 47% for the year (even including dividends) , but the market itself is up 14%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 1.8% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality business. 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 OceanaGold that you should be aware of before investing here.