Why Have Singapore Airlines Ltd’s Shares Lost 5.5% In Value In 5 Years?

I think it’s fair to say that most investors would like to find stocks that can increase in value over time. That value can come from a higher share price or the distribution of dividends.

Both factors – price appreciation and dividends – generally share 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).

I want to look at the business performance of Singapore’s flagship carrier, Singapore Airlines Ltd (SGX: C6L), over its last five completed fiscal years. I also want to 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 Singapore Airlines’ performance:

Singapore Airines' business results table
Source: S&P Global Market Intelligence

Over the timeframe we’re looking at, Singapore Airlines’ revenue has grown by a little. But, its earnings per share has more than doubled. Meanwhile, the company’s gearing has remained low (less than 11%) despite operating in a highly capital intensive industry.

Singapore Airlines’ low returns on equity – like its low revenue-growth – could be something to keep an eye on for investors.

As a whole, the company’s results have improved over its past five fiscal years. But, in the five years ended 18 July 2016, Singapore Airlines’ stock price has declined by 23%. If reinvested dividends are thrown into the calculations, the airline’s total returns would still clock in at a negative 5.5%.

These return numbers could be a reflection of Singapore Airlines’ returns on equity that have been persistently in the low single-digit range.

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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.