In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term AIXTRON SE (ETR:AIXA) shareholders have had that experience, with the share price dropping 45% in three years, versus a market return of about 54%. And the ride hasn't got any smoother in recent times over the last year, with the price 24% lower in that time. More recently, the share price has dropped a further 18% in a month. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
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.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
AIXTRON saw its EPS decline at a compound rate of 1.9% per year, over the last three years. This reduction in EPS is slower than the 18% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for AIXTRON the TSR over the last 3 years was -43%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
While the broader market gained around 21% in the last year, AIXTRON shareholders lost 23% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering.