As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Millennium & Copthorne Hotels New Zealand Limited (NZSE:MCK) shareholders have had that experience, with the share price dropping 14% in three years, versus a market return of about 19%.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
During the three years that the share price fell, Millennium & Copthorne Hotels New Zealand’s earnings per share (EPS) dropped by 6.7% each year. In comparison the 5% compound annual share price decline isn’t as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Millennium & Copthorne Hotels New Zealand’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Millennium & Copthorne Hotels New Zealand the TSR over the last 3 years was -6.7%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We’re pleased to report that Millennium & Copthorne Hotels New Zealand shareholders have received a total shareholder return of 0.8% over one year. And that does include the dividend. There’s no doubt those recent returns are much better than the TSR loss of 0.3% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Millennium & Copthorne Hotels New Zealand , and understanding them should be part of your investment process.
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 NZ 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.