November 2, 2024

KT Business

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Shareholders in Cavendish Financial (LON:CAV) are in the red if they invested three years ago

Shareholders in Cavendish Financial (LON:CAV) are in the red if they invested three years ago

While not a mind-blowing move, it is good to see that the Cavendish Financial plc (LON:CAV) share price has gained 12% in the last three months. Meanwhile over the last three years the stock has dropped hard. Tragically, the share price declined 68% in that time. So it’s good to see it climbing back up. After all, could be that the fall was overdone.

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.

Check out our latest analysis for Cavendish Financial

Because Cavendish Financial made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over the last three years, Cavendish Financial’s revenue dropped 15% per year. That’s definitely a weaker result than most pre-profit companies report. Arguably, the market has responded appropriately to this business performance by sending the share price down 19% (annualized) in the same time period. Bagholders or ‘baggies’ are people who buy more of a stock as the price collapses. They are then left ‘holding the bag’ if the shares turn out to be worthless. It could be a while before the company repays long suffering shareholders with share price gains.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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earnings-and-revenue-growth

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. This free interactive report on Cavendish Financial’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Cavendish Financial, it has a TSR of -65% 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.

A Different Perspective

We’re pleased to report that Cavendish Financial shareholders have received a total shareholder return of 30% over one year. Of course, that includes the dividend. There’s no doubt those recent returns are much better than the TSR loss of 8% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It’s always interesting to track share price performance over the longer term. But to understand Cavendish Financial better, we need to consider many other factors. Take risks, for example – Cavendish Financial has 5 warning signs (and 2 which are significant) we think you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

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