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Civitas Resources, Inc. (NYSE:CIVI) shareholders might understandably be very concerned that the share price has dropped 50% in the last quarter. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 73%, less than the market return of 86%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 68% drop, in the last year.
While the stock has fallen 29% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Civitas Resources achieved compound earnings per share (EPS) growth of 23% per year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 2.70.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Civitas Resources' key metrics by checking this interactive graph of Civitas Resources's earnings, revenue and cash flow .
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, Civitas Resources' TSR for the last 5 years was 140%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 4.5% in the twelve months, Civitas Resources shareholders did even worse, losing 65% (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. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Civitas Resources (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.