It is doubtless a positive to see that the Cahya Mata Sarawak Berhad (KLSE:CMSB) share price has gained some 31% in the last three months. But that doesn't change the fact that the returns over the last half decade have been disappointing. In fact, the share price has declined rather badly, down some 68% in that time. Some might say the recent bounce is to be expected after such a bad drop. We'd err towards caution given the long term under-performance.
On a more encouraging note the company has added RM150m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
View our latest analysis for Cahya Mata Sarawak Berhad
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the unfortunate half decade during which the share price slipped, Cahya Mata Sarawak Berhad actually saw its earnings per share (EPS) improve by 3.3% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
The modest 1.7% dividend yield is unlikely to be guiding the market view of the stock. Arguably, the revenue drop of 20% a year for half a decade suggests that the company can't grow in the long term. That could explain the weak share price.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Cahya Mata Sarawak Berhad has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Cahya Mata Sarawak Berhad will earn in the future (free profit forecasts).
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Cahya Mata Sarawak Berhad's TSR for the last 5 years was -65%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Cahya Mata Sarawak Berhad had a tough year, with a total loss of 7.5% (including dividends), against a market gain of about 0.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 11% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. To that end, you should be aware of the 1 warning sign we've spotted with Cahya Mata Sarawak Berhad .
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on MY exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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