Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Whitbread plc (LON:WTB), since the last five years saw the share price fall 37%. Furthermore, it’s down 13% in about a quarter. That’s not much fun for holders.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Whitbread
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Whitbread moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
In contrast to the share price, revenue has actually increased by 20% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Whitbread is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Whitbread the TSR over the last 5 years was -21%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
While the broader market gained around 13% in the last year, Whitbread shareholders lost 20% (even including dividends). 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, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand Whitbread better, we need to consider many other factors. For instance, we’ve identified 3 warning signs for Whitbread that you should be aware of.
