Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Tailored Brands, Inc. (NYSE:TLRD) during the five years that saw its share price drop a whopping 91%. And it’s not just long term holders hurting, because the stock is down 63% in the last year. On the other hand the share price has bounced 6.4% over the last week.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Tailored Brands became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
The revenue fall of 1.3% per year for five years is neither good nor terrible. But it’s quite possible the market had expected better; a closer look at the revenue trends might explain the pessimism.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business.
What about the Total Shareholder Return (TSR)?
We’ve already covered Tailored Brands’s share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Tailored Brands shareholders, and that cash payout explains why its total shareholder loss of 88%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
Investors in Tailored Brands had a tough year, with a total loss of 59%, against a market gain of about 27%. 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 35% over the last half decade. 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. It’s always interesting to track share price performance over the longer term. But to understand Tailored Brands better, we need to consider many other factors. For instance, we’ve identified 3 warning signs for Tailored Brands (1 is concerning) that you should be aware of.
