Imagine owning Sampo Oyj (HEL:SAMPO) and wondering if the 34% share price drop is justified

Sampo Oyj (HEL: SAMPO) shareholders should be happy to see the stock price rise 16% over the past month. But that doesn’t change the fact that returns over the past three years have been less than pleasing. In fact, the stock price is down 34% over the past three years, well below the market return.

Check out our latest review for Sampo Oyj

In his test The Graham-and-Doddsville super-investors Warren Buffett has described how stock prices don’t always rationally reflect a company’s value. An imperfect but simple way to examine how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.

During the three years of declining share price, earnings per share (EPS) of Sampo Oyj fell by 12% each year. This change in EPS is reasonably close to the average annual decline of 13% in the share price. So it seems that investors’ expectations of the company remain fairly stable, despite the disappointment. In this case, it looks like the EPS is driving the stock price.

The company’s earnings per share (over time) is shown in the image below (click to see exact numbers).

HLSE:SAMPO Earnings past and future May 4, 2020

HLSE:SAMPO Earnings past and future May 4, 2020

It might be interesting to take a look at our free Sampo Oyj earnings, revenue and cash flow report.

What about dividends?

In addition to measuring share price performance, investors should also consider total shareholder return (TSR). TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. It’s fair to say that the TSR gives a more complete picture of stocks that pay a dividend. Note that for Sampo Oyj the TSR over the past 3 years was -24%, which is better than the stock price return mentioned above. This is largely the result of its dividend payments!

A different perspective

While the broader market lost around 3.4% in the twelve months, Sampo Oyj shareholders fared even worse, losing 25% (even including dividends). That said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may point to unresolved challenges, given that it was worse than the 2.6% annualized loss over the past half-decade. Generally speaking, long-term stock price weakness can be a bad sign, although contrarian investors may want to seek out the stock in hopes of a turnaround. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Consider the risks, for example. Every business has them, and we’ve spotted 3 warning signs for Sampo Oyj you should know.

But note: Sampo Oyj may not be the best stock to buy. So take a look at this free list of interesting companies with past earnings growth (and new growth forecasts).

Please note that the market returns quoted in this article reflect the market-weighted average returns of the stocks currently trading on the FI exchanges.

If you spot an error that needs to be corrected, please contact the editor at [email protected] This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Simply Wall St has no position in the stocks mentioned.

Our goal is to bring you long-term, targeted research analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Thanks for the reading.

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