As an investor, it pays to strive to ensure that your overall portfolio beats the market average. But it is virtually certain that sometimes you will buy stocks that do not match the average market returns. Unfortunately, this is the case in the longer term. Strategic Education, Inc. (NASDAQ: STRA), since the stock price has fallen 44% over the past three years, well below the market return of around 108%. And newer buyers are also going through a rough patch, dropping 37% last year. Shareholders have had an even tougher time lately, with the share price falling 16% in the past 90 days.
On a more encouraging note, the company added $ 62 million to its market cap over the past 7 days, so let’s see if we can determine what caused the three-year loss for shareholders.
See our latest analysis for strategic education
It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. A flawed but reasonable way to gauge how sentiment is changing around a company is to compare earnings per share (EPS) with the stock price.
Strategic education has become profitable over the past five years. This would generally be viewed as a positive, so we’re surprised to see that the stock price is going down. So it is worth looking at other metrics to try to understand the course of the share price.
We note that the dividend looks quite healthy, which probably does not explain the drop in the share price. We love that Strategic Education has actually increased its revenue over the past three years. But we don’t know why the stock price is falling. It may be worth diving deeper into the fundamentals, lest an opportunity presents itself.
The graph below illustrates the evolution of earnings and income over time (reveal the exact values by clicking on the image).
It’s good to see that there have been some significant insider buys over the past three months. This is a positive point. That said, we believe earnings and revenue growth trends are even more important factors to consider. This free a report showing analyst forecasts should help you get a feel for strategic education
What about dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spin-off. It’s fair to say that the TSR gives a more complete picture of dividend paying stocks. As it turns out, Strategic Education’s TSR over the past 3 years was -40%, which exceeds the share price return mentioned earlier. The dividends paid by the company thus boosted the total shareholder return.
A different perspective
Strategic Education shareholders are down 35% on the year (including dividends), but the market itself is up 19%. Even good stock prices drop sometimes, but we want to see improvements in the fundamentals of a business, before we get too interested. Sadly, last year’s performance capped a bad run, with shareholders facing a total loss of 4% per year over five years. We are aware that Baron Rothschild has said that investors should “buy when there is blood in the streets”, but we caution that investors must first ensure that they are buying a high quality business. It is always interesting to follow the evolution of stock prices over the long term. But to better understand strategic education, there are many other factors that we need to consider. Concrete example: we have spotted 4 warning signs for strategic education you must be aware.
Strategic education isn’t the only stock that initiates buy. For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on the US stock exchanges.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.