For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Varia Europe Properties AG (BRN:VARE) shareholders have had that experience, with the share price dropping 61% in three years, versus a market return of about 23%. Furthermore, it’s down 25% in about a quarter. That’s not much fun for holders. This could be related to the latest financial results – you can catch up on the most recent data by reading our company report.
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.
View our latest analysis for Varia Europe Properties
With just €229,830 worth of revenue in twelve months, we don’t think the market considers Varia Europe Properties to have a proven business plan. This state of affairs suggests that venture capitalists will not provide funds on attractive terms. So it seems that the investors are focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely that some shareholders believe that Varia Europe Properties will significantly advance the business plan before it takes too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. While some such companies did very well over the long term, others became hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). It certainly is a dangerous place to invest, as Varia Europe Properties investors might realise.
Our data indicates that Varia Europe Properties had €336k more in total liabilities than it had cash, when it was last reported in December 2022. That makes it extremely high risk, in our view. But since the share price has dived 27% per year, over 3 years , it looks like some investors think it’s time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Varia Europe Properties’ cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder returns (TSR) and share price returns. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Varia Europe Properties, it has a TSR of -19% for the last 3 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments in part explain the divergence!
A Different Perspective
The last twelve months weren’t great for Varia Europe Properties shares, which cost holders 4.4%, including dividends, while the market was up about 4.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 6% per annum loss investors have suffered over the last three years. We would like clear information suggesting the company will grow, before taking the view that the share price will stabilize. I found 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. Take risks, for example – Varia Europe Properties has 5 warning signs (and 3 which are a bit concerning) we think you should know about.
Of course Varia Europe Properties may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that are currently trading on Swiss 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.
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