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Tower (NZSE:TWR) shareholders have endured a 0.9% loss from investing in the stock five years ago

For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Tower Limited (NZSE:TWR) shareholders for doubting their decision to hold, with the stock down 31% over a half decade.

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.

View our latest analysis for Tower

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Tower moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

The steady dividend doesn't really explain why the share price is down. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
earnings-and-revenue-growth

We know that Tower has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Tower will earn in the future (free profit forecasts).

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Tower, it has a TSR of -0.9% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Although it hurts that Tower returned a loss of 5.5% in the last twelve months, the broader market was actually worse, returning a loss of 12%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 0.2% over the last half decade. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. 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. For example, we've discovered 1 warning sign for Tower that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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