Advertisement
Australia markets close in 3 hours 26 minutes
  • ALL ORDS

    8,007.00
    -3.50 (-0.04%)
     
  • ASX 200

    7,764.80
    -4.90 (-0.06%)
     
  • AUD/USD

    0.6671
    -0.0002 (-0.03%)
     
  • OIL

    81.41
    -0.16 (-0.20%)
     
  • GOLD

    2,347.50
    +0.60 (+0.03%)
     
  • Bitcoin AUD

    97,646.34
    -152.55 (-0.16%)
     
  • CMC Crypto 200

    1,385.83
    +48.08 (+3.59%)
     
  • AUD/EUR

    0.6209
    +0.0004 (+0.07%)
     
  • AUD/NZD

    1.0881
    +0.0008 (+0.08%)
     
  • NZX 50

    11,742.46
    +71.27 (+0.61%)
     
  • NASDAQ

    19,908.86
    +6.11 (+0.03%)
     
  • FTSE

    8,205.11
    +13.82 (+0.17%)
     
  • Dow Jones

    38,834.86
    +56.76 (+0.15%)
     
  • DAX

    18,067.91
    -64.06 (-0.35%)
     
  • Hang Seng

    18,427.63
    -2.76 (-0.01%)
     
  • NIKKEI 225

    38,324.14
    -246.62 (-0.64%)
     

United Internet's (ETR:UTDI) earnings have declined over five years, contributing to shareholders 64% loss

Statistically speaking, long term investing is a profitable endeavour. But unfortunately, some companies simply don't succeed. For example, after five long years the United Internet AG (ETR:UTDI) share price is a whole 66% lower. We certainly feel for shareholders who bought near the top. And we doubt long term believers are the only worried holders, since the stock price has declined 41% over the last twelve months.

While the last five years has been tough for United Internet shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for United Internet

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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

Looking back five years, both United Internet's share price and EPS declined; the latter at a rate of 9.8% per year. This reduction in EPS is less than the 19% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 9.57 further reflects this reticence.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

This free interactive report on United Internet's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, United Internet's TSR for the last 5 years was -64%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 17% in the twelve months, United Internet shareholders did even worse, losing 40% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with United Internet (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course United Internet may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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