Many investors define successful investment as long-term surplus to the market average. It is almost inevitable, however, that you will occasionally acquire equities which are below the average market returns. Sadly, that was the case for the long-term shareholders of Yancoal Australia Ltd (ASX:YAL), because in the previous three years the share price has fallen 56 percent, significantly below a market return of about 30 percent. In the last 90 days, shareholders have had an even more tougher run, with the share price decreasing by 16 percent.
Yancoal Australia is not profitable today, so most analysts look to the growth of revenues to acquire an understanding of the rapid expansion of the underlying firm. Unprofitable corporate shareholders frequently demand rapid growth in revenue. This is because rapid sales growth can readily be extrapolated to predict profit, which is generally significant.
Yancoal Australia’s sales have increased in the last three years by 3.0 percent annually. Since it loses money to pursue growth, that doesn’t truly impress us. It is probably that poor growth has contributed in the last three years to an annualised return of 16%. Some investors want to include a company in a watch list when the stock falls hard (in case the business recovers, longer term). Bear in mind that good companies don’t have a hard or uninspired time for a few years.
The following image demonstrates how income and income have been tracked throughout time
What about total shareholder return?
Lastly, we’d be remiss if we didn’t notice the disparity between Yancoal Australia’s total shareholder return (TSR) and the company’s stock price return. The total shareholder return (TSR) aims to reflect the value of dividends (as if they were re-invested) as well as the value of any spin-offs or discounted capital raisings made to investors. Because of the company’s history of dividend payment, Yancoal Australia’s total shareholder return (TSR), which was a 46 percent loss over the last three years, was not as terrible as the share price return.
From a Different Point of View
While the broader market gained almost 38 percent over the past year, Yancoal Australia stockholders saw their shares decline by 5.9 percent during the same period. But remember that even the finest equities may occasionally underperform the market over a twelve-month period, regardless of their quality. On the plus side, long-term stockholders have benefited from the company’s performance, with an average annual increase of 0.8 percent over the past half-decade. It’s possible that the current sell-off represents an opportunity, therefore it’s worth looking at the basic data to see whether there are any indicators of a longer-term growth tendency. I find it really intriguing to examine the success of a company’s stock price over a lengthy period of time as a proxy for its overall performance. However, in order to properly get insight, we must take into account additional information. Risks can be taken, for example – Yancoal Australia has two warning flags (including one that makes us a little uneasy) that we believe you should be aware of.
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We would like to emphasise that the market returns referred to in this article represent the market weighted average returns of equities that are actively trading on Australian stock exchanges.
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