Singapore Post Limited’s Shares Are Down Over 13% in 1 Year: Here’s What Happened

Over the past year, shares of mail and logistics services provider Singapore Post Limited (SGX: S08) are down by 13% in price. What has happened?

A simple framework

To help with this, I would like to defer to a couple of paragraphs from The Little Book that Builds Wealth by author and fund manager Pat Dorsey:

“Over long stretches of time, there are just two things that push a stock up or down: The investment return, driven by earnings growth and dividends, and the speculative return, driven by changes in the price-earnings (P/E) ratio.

Think of the investment return as reflecting a company’s financial performance, and the speculative return as reflecting the exuberance or pessimism of other investors.”

Under Dorsey’s framework, a stock’s price returns can be made out entirely of the investment return component, entirely of the speculative return component, or a mixture of both components.

For the Foolish investor, understanding the right reason is important. If we can determine the reason, we may get an inkling on whether the movement in a stock’s price is deserved or undeserved.

Deciphering the moving pieces

We can track the investment or speculative components of a stock’s return by noting down changes in its financial metrics such as its earnings per share (EPS) and price to earnings ratio (PE ratio). On a related side note, such notes could also be a simple way for you to track the progress of a company over time and can form part of your investment journal entries.

Coming back to Singapore Post, I have summarised changes to the company’s EPS, PE ratio, and share price over the last 12 months in the table below:

Source: Google Finance; company’s earnings report

Singapore Post’s EPS has risen almost 50% over the past year. But, its PE ratio has shrank by 42% to less than 15. This has been the big driver behind the company’s lower share price. The lower PE ratio also suggests that investors have grown more pessimistic about the company over the last 12 months.

It might be an understatement to say that Singapore Post has been beset with problems in the past year.

The company’s ex-chief executive, Dr. Wolfgang Baier, abruptly resigned in December last year. Then, questions over the company’s corporate governance were raised, which has led to the departure of one of its directors. Singapore Post’s ex-chairman, Lim Ho Kee, then stepped down in May this year. This was followed by the departure of Sascha Hower, who was the chief operating officer.

Simon Israel has taken over as Singapore Post’s chairman. He has acknowledged the challenges that are ahead, and had laid out management’s thoughts about them during Singapore Post’s Annual General Meeting in May.

Foolish takeaway

If a stock’s price rises (or falls), we should try to understand if it is backed by a company’s fundamental growth (or decline), or whether it is simply a result of investor exuberance (or pessimism).

When we understand the difference, we may become a better judge on whether a stock’s price gains (losses) are justified – with commensurate growth (decline) in earnings – or something that happened as a result of the market’s irrationality. Such knowledge can help us with our decision making.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.