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No-one enjoys it when they lose money on a stock. But when the market is down, you're bound to have some losers. The Vector Limited (NZSE:VCT) is down 12% over three years, but the total shareholder return is 1.8% once you include the dividend. And that total return actually beats the market decline of 9.8%.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
See our latest analysis for Vector
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Although the share price is down over three years, Vector actually managed to grow EPS by 5.2% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics. So we'll have to take a look at other metrics to try to understand the price action.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Vector has maintained its top line over three years, so we doubt that has shareholders worried. A closer look at revenue and profit trends might yield insights.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Vector has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Vector in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Vector's TSR for the last 3 years was 1.8%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Vector shareholders are down 4.1% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.8%. 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. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Vector better, we need to consider many other factors. For instance, we've identified 2 warning signs for Vector that you should be aware of.