Why Have Wilmar International Limited’s Shares Lost 36% In Value In 5 Years?

A veteran investor once told me that “investing is about giving up your purchasing power today in the hopes of getting higher purchasing power in the future.”

In stock market investing, the above quote translates into buying stocks that will increase in value in the future. That value can come from an appreciation in a stock’s price as well as the dividends the stock distributes.

Both factors – price appreciation and dividends – are generally derived from the same source, a company’s profit.

This profit is, in turn, driven by a company’s business performance. In general, companies with strong businesses exhibit sustainable growth, high margins, high returns on equity, and low gearing (gearing is a gauge of how much debt a company’s taking on).

In here, I want to look at how agribusiness giant Wilmar International Limited’s (SGX:F34) business has performed over its last five completed fiscal years as well as track the total return of its stock (the total return would factor in gains from reinvested dividends along with the stock’s price changes).

The following table illustrates Wilmar’s business performance:

Wilmar business results table
Source: S&P Global Market Intelligence

Here are some of my key observations about Wilmar’s business results:

  • The agriculture firm has seen both its revenue and earnings per share decline over the past five years.
  • That’s not all – its returns on equity have also dropped by nearly half from 12.7% in 2011 to 7.0% in 2015.
  • A positive development here is the company’s lower gearing. It appears that Wilmar’s balance sheet has strengthened over the past five years.

So as a whole, Wilmar’s business has performed negatively in the past few years. One of the main culprits for the company’s poor performance is the decline in the price of crude palm oil. Wilmar is one of the world’s largest producers of crude palm oil.

In the five years ended 11 July 2016, Wilmar’s shares have seen their price decline by 42%. If gains from reinvested dividends were included, the agriculture company’s total return would be a negative 36% instead.

So as you can see, Wilmar’s weak business results have been reflected in its total return. This is an important reminder that a company’s stock price is often driven by its business performance over the long term.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.