Capita Shareholders Suffer 84% Loss in Five Years
July 12, 2023: Investing in stocks for the long term can be profitable, but it only guarantees success for some individual stocks. Capita plc (LON: CPI) shareholders have experienced a significant setback, with the stock plunging by 84% over the past five years. The recent decline has been even more pronounced, with a 24% drop in the last 90 days. Investors must have a diversified portfolio to mitigate the impact of such price crashes. However, even in the face of losses, valuable lessons must be learned.
To assess the company’s overall performance, let’s examine whether Capita’s long-term progress aligns with its business growth. Warren Buffett’s essay “The Superinvestors of Graham-and-Doddsville” highlights that stock prices don’t always reflect a company’s value. One way to gauge market perception is by comparing the change in earnings per share (EPS) with the share price movement.
Over the past five years, Capita has transitioned from a loss-making company to profitability, which is generally positive. However, it’s surprising that the share price has declined despite this improvement. To better understand its value evolution, we should consider other metrics.
The decline in revenue by 7.1% annually shows Capita’s contraction, leading some shareholders to sell their stock. The image below depicts the company’s revenue and earnings over time, offering more detailed numbers.
While Capita has shown bottom-line improvement in the past three years, it’s essential to consider the company’s future prospects. A detailed report on its balance sheet can provide valuable insights for those interested in buying or selling Capita stock.
Taking a different perspective, the company has rewarded shareholders with a total shareholder return of 5.9% in the past twelve months. This recent improvement is considerably better than the average yearly loss of 13% over the past five years. Although long-term performance holds more weight, this positive shift may indicate a potential turning point for the business. Examining share prices over an extended period can be a proxy for assessing business performance. However, to gain comprehensive insights, it’s essential to consider additional information. Notably, investors should be aware of one warning sign regarding Capita.