The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Auckland International Airport Limited (NZSE:AIA) share price is down 36% in the last year. That falls noticeably short of the market decline of around 4.2%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 7.6% in three years. It's down 1.2% in the last seven days.
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.
Unfortunately Auckland International Airport reported an EPS drop of 18% for the last year. This reduction in EPS is not as bad as the 36% share price fall. So it seems the market was too confident about the business, a year ago.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Auckland International Airport's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Auckland International Airport's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Auckland International Airport shareholders, and that cash payout explains why its total shareholder loss of 35%, over the last year, isn't as bad as the share price return.
A Different Perspective
Auckland International Airport shareholders are down 35% for the year, but the market itself is up 4.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 7.1%, 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. 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. For instance, we've identified 4 warning signs for Auckland International Airport (1 is a bit unpleasant) that you should be aware of.
Auckland International Airport is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ exchanges.
This article by Simply Wall St is general in nature. 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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