September 2, 2020 at 9:25 am

Alon Natural Gas Exploration’s share price and EPS declined; the latter at a rate of 12% per year

By Sandesh Ilhe

Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Alon Natural Gas Exploration Ltd. (TLV:ALGS) for five years would be nursing their metaphorical wounds since the share price dropped 83% in that time. And it’s not just long term holders hurting, because the stock is down 52% in the last year. Furthermore, it’s down 15% in about a quarter. That’s not much fun for holders. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.

While a drop like that is definitely a body blow, money isn’t as important as health and happiness.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Looking back five years, both Alon Natural Gas Exploration’s share price and EPS declined; the latter at a rate of 12% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 29% per year, over the period. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 8.66.

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

earnings-per-share-growth
TASE:ALGS Earnings Per Share Growth August 29th 2020

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What about the Total Shareholder Return (TSR)?

We’d be remiss not to mention the difference between Alon Natural Gas Exploration’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Alon Natural Gas Exploration’s TSR, which was a 78% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 6.2% in the twelve months, Alon Natural Gas Exploration shareholders did even worse, losing 52%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% 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. 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. Like risks, for instance. Every company has them, and we’ve spotted 6 warning signs for Alon Natural Gas Exploration (of which 2 make us uncomfortable!) you should know about.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



Sandesh Ilhe

With an Engineers degree in Advanced Database Management and Information Security, Sandesh brings the deep understanding of the digital world to the table. His articles reflect the challenges and the complexities that come along with every disruption in the industry. He carries over six years of experience on working with websites and ensuring that the right article reaches the right reader.

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