Long term investing works well, but it doesn’t always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Anyone who held Signet Jewelers Limited (NYSE:SIG) for five years would be nursing their metaphorical wounds since the share price dropped 82% in that time. Even worse, it’s down 16% in about a month, which isn’t fun at all. However, we note the price may have been impacted by the broader market, which is down 8.8% in the same time period.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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).
Signet Jewelers has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn’t reliably profitable. Other metrics might give us a better handle on how its value is changing over time.
We note that the dividend has remained healthy, so that wouldn’t really explain the share price drop. While it’s not completely obvious why the share price is down, a closer look at the company’s history might help explain it.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Signet Jewelers, it has a TSR of -79% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Investors in Signet Jewelers had a tough year, with a total loss of 9.2% (including dividends) , against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 27% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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.
