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As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Breedon Group plc (LON:BREE) shareholders have had that experience, with the share price dropping 13% in three years, versus a market return of about 24%.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for Breedon Group
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).
During the unfortunate three years of share price decline, Breedon Group actually saw its earnings per share (EPS) improve by 49% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It is a little bizarre to see the share price down, despite a strong improvement to earnings per share. Therefore, we should look at some other metrics to try to understand why the market is disappointed.
Revenue is actually up 18% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Breedon Group further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Breedon Group is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Breedon Group in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Breedon Group the TSR over the last 3 years was -8.2%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!