The past three years for Thungela Resources (JSE:TGA) investors has not been profitable

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01-06-2025

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. Unfortunately, that's been the case for longer term Thungela Resources Limited (JSE:TGA) shareholders, since the share price is down 64% in the last three years, falling well short of the market return of around 33%. And over the last year the share price fell 32%, so we doubt many shareholders are delighted. Furthermore, it's down 19% in about a quarter. That's not much fun for holders.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Thungela Resources' earnings per share (EPS) dropped by 23% each year. This fall in EPS isn't far from the rate of share price decline, which was 29% per year. So it seems like sentiment towards the stock hasn't changed all that much over time. Rather, the share price has approximately tracked EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Thungela Resources' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Thungela Resources the TSR over the last 3 years was -30%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
The last twelve months weren't great for Thungela Resources shares, which cost holders 23%, including dividends, while the market was up about 30%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 9% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand Thungela Resources better, we need to consider many other factors. For example, we've discovered 3 warning signs for Thungela Resources (1 is significant!) that you should be aware of before investing here.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South African exchanges.
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