The past three years for BCE (TSE:BCE) investors has not been profitable

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16 hours ago

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term BCE Inc. (TSE:BCE) shareholders have had that experience, with the share price dropping 53% in three years, versus a market return of about 48%. And over the last year the share price fell 33%, so we doubt many shareholders are delighted.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
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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.
During the three years that the share price fell, BCE's earnings per share (EPS) dropped by 49% each year. This fall in the EPS is worse than the 22% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in. With a P/E ratio of 70.47, it's fair to say the market sees a brighter future for the business.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on BCE's earnings, revenue and cash flow.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, BCE's TSR for the last 3 years was -40%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
BCE shareholders are down 26% for the year (even including dividends), but the market itself is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with BCE (at least 1 which is significant) , and understanding them should be part of your investment process.
BCE is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.
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