Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the The New York Times Company (NYSE:NYT) share price is up 68% in the last three years, that falls short of the market return. Looking at more recent returns, the stock is up 8.7% in a year.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
New York Times was able to grow its EPS at 20% per year over three years, sending the share price higher. We note that the 19% yearly (average) share price gain isn’t too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market’s attitude to the business hasn’t changed all that much. Rather, the share price has approximately tracked EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that New York Times has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of New York Times, it has a TSR of 74% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
New York Times shareholders gained a total return of 10% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 9% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We’ve spotted 1 warning sign for New York Times you should be aware of.
