Advertisement
Australia markets close in 3 hours 30 minutes
  • ALL ORDS

    7,975.10
    -27.40 (-0.34%)
     
  • ASX 200

    7,724.60
    -25.10 (-0.32%)
     
  • AUD/USD

    0.6637
    -0.0000 (-0.00%)
     
  • OIL

    78.17
    -0.45 (-0.57%)
     
  • GOLD

    2,320.90
    +2.90 (+0.13%)
     
  • Bitcoin AUD

    100,634.44
    -1,947.39 (-1.90%)
     
  • CMC Crypto 200

    1,419.91
    +6.96 (+0.49%)
     
  • AUD/EUR

    0.6176
    +0.0003 (+0.06%)
     
  • AUD/NZD

    1.0773
    +0.0020 (+0.19%)
     
  • NZX 50

    11,866.82
    -5.82 (-0.05%)
     
  • NASDAQ

    19,576.92
    +111.74 (+0.57%)
     
  • FTSE

    8,163.67
    -51.81 (-0.63%)
     
  • Dow Jones

    38,647.10
    -65.11 (-0.17%)
     
  • DAX

    18,265.68
    -365.18 (-1.96%)
     
  • Hang Seng

    17,982.72
    -129.91 (-0.72%)
     
  • NIKKEI 225

    38,726.75
    +6.28 (+0.02%)
     

Investors in GSK (LON:GSK) have unfortunately lost 19% over the last year

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the GSK plc (LON:GSK) share price slid 37% over twelve months. That falls noticeably short of the market decline of around 1.2%. Notably, shareholders had a tough run over the longer term, too, with a drop of 35% in the last three years.

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.

See our latest analysis for GSK

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

ADVERTISEMENT

Unfortunately GSK reported an EPS drop of 13% for the last year. The share price decline of 37% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on GSK's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, GSK's TSR for the last 1 year was -19%, 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

While the broader market lost about 1.2% in the twelve months, GSK shareholders did even worse, losing 19% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Case in point: We've spotted 2 warning signs for GSK you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here