Mortgage Advice Bureau (Holdings) (LON:MAB1) stock falls 13% in past week as one-year earnings and shareholder returns continue downward trend

Simply Wall St · 09/15/2023 05:36

Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Mortgage Advice Bureau (Holdings) plc (LON:MAB1) have tasted that bitter downside in the last year, as the share price dropped 44%. That falls noticeably short of the market return of around 5.4%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 26% in three years. The falls have accelerated recently, with the share price down 27% in the last three months.

If the past week is anything to go by, investor sentiment for Mortgage Advice Bureau (Holdings) isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Mortgage Advice Bureau (Holdings)

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unhappily, Mortgage Advice Bureau (Holdings) had to report a 38% decline in EPS over the last year. We note that the 44% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
AIM:MAB1 Earnings Per Share Growth September 15th 2023

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Mortgage Advice Bureau (Holdings)'s earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Mortgage Advice Bureau (Holdings), it has a TSR of -41% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Mortgage Advice Bureau (Holdings) had a tough year, with a total loss of 41% (including dividends), against a market gain of about 5.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For example, we've discovered 3 warning signs for Mortgage Advice Bureau (Holdings) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.