If you build a well-diversified stock portfolio, chances are some of your picks will perform poorly. But the long-term shareholders of Vista Group International Limited (NZSE: VGL) have had an unfortunate run for the past three years. Unfortunately, they withstood a 60% drop in the stock price during this period. And newer buyers are also having a tough time, down 41% last year. Moreover, it fell by 22% in about a quarter. It’s not much fun for the holders.
With that in mind, it’s worth looking at whether the company’s underlying fundamentals have been driving long-term performance, or if there are any gaps.
Vista Group International has not been profitable for the last twelve months, we are unlikely to see a strong correlation between its share price and its earnings per share (EPS). Income is arguably our second best option. Shareholders of unprofitable companies generally expect strong revenue growth. Indeed, rapid revenue growth can be easily extrapolated to predict profits, often of considerable size.
Over the past three years, Vista Group International’s revenues have fallen 14% per year. It’s not a good result. With declining revenues and profits that are only a dream, one can understand why the stock price is falling by 17% per year. Of course, the future will determine if today’s price is good. We generally don’t like owning businesses that lose money and can’t grow revenue. But any business is worth considering when it makes an initial profit.
The graph below illustrates the evolution of income and income over time (reveal the exact values by clicking on the image).
If you are considering buying or selling shares of Vista Group International, you should check out this FREE detailed balance sheet report.
What about total shareholder return (TSR)?
We’ve already covered Vista Group International’s share price performance, but we should also mention its total shareholder return (TSR). Arguably, TSR is a more comprehensive return calculation because it takes into account the value of dividends (as if reinvested), as well as the hypothetical value of any discounted capital that has been offered to shareholders. Its dividend payout history means that Vista Group International’s TSR, which was 57% drop over the past 3 years, hasn’t been as bad as the stock price performance.
A different perspective
While the broader market lost around 11% in the twelve months, Vista Group International shareholders fared even worse, losing 41%. That said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may point to unresolved challenges, given that it was worse than the 7% annualized loss over the past half-decade. Generally speaking, long-term stock price weakness can be a bad sign, although contrarian investors may want to seek out the stock in hopes of a turnaround. It is always interesting to follow the evolution of the share price over the long term. But to better understand Vista Group International, we need to consider many other factors. Take for example the ubiquitous specter of investment risk. We have identified 1 warning sign with Vista Group International and understanding them should be part of your investment process.
But note: Vista Group International may not be the best stock to buy. So take a look at this free list of interesting companies with past earnings growth (and new growth forecasts).
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on New Zealand stock exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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