Micro Focus International (LON: MCRO) shareholders are up 5.9% last week, but still in the red for the past five years
Long-term investing works well, but it doesn’t always work for every individual stock. We do not wish anyone a catastrophic capital loss. Imagine if you held Micro Focus International plc (LON: MCRO) for half a decade as the stock price fell 87%. Unfortunately, stock market dynamics remain fairly negative, with prices down 9.7% in thirty days. We really feel for the shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind that life isn’t just about money, anyway.
While the past week has been more reassuring for shareholders, they are still in the red over the past five years, so let’s see if underlying activity is responsible for the downturn.
See our latest analysis for Micro Focus International
Since Micro Focus International has not made a profit in the past twelve months, we will focus on revenue growth to get a quick view of its business development. Shareholders of unprofitable companies generally expect strong revenue growth. As you can imagine, rapid revenue growth, when sustained, often leads to rapid profit growth.
In five years, Micro Focus International has increased its turnover by 19% per year. It’s better than most loss-making businesses. So we have no idea why the stock price fell 13% during that time. It could be that the stock has been over-exaggerated before. While there may be an opportunity here, you would want to take a close look at the strength of the balance sheet.
You can see how income and income have changed over time in the image below (click on the graph to see the exact values).
You can see how his track record has strengthened (or weakened) over time in this free interactive graphics.
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 discounted demerger or capital increase, as well as any dividend, on the basis of the assumption that dividends are reinvested. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. Note that for Micro Focus International the TSR over the last 5 years was -80%, which is better than the return on the share price mentioned above. And there’s no price guessing that dividend payments are a big part of the reason for the discrepancy!
A different perspective
Micro Focus International shareholders are down 11% on the year (including dividends), but the market itself is up 16%. Even good stock prices drop sometimes, but we want to see improvements in the fundamentals of a business, before we get too interested. Unfortunately, longer-term shareholders suffer more, given the 12% loss distributed over the past five years. We would need to see sustained improvements in key metrics before we can muster much enthusiasm. I find it very interesting to look at the stock price over the long term as an indicator of company performance. But to really understand better, we have to take other information into account as well. For example, we have identified 2 warning signs for Micro Focus International that you need to be aware of.
If you are like me then you not want to miss it free list of growing companies that insiders buy.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on UK stock exchanges.
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