Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Centum Electronics Limited (NSE:CENTUM) shareholders, since the share price is down 23% in the last three years, falling well short of the market return of around 16%. Unfortunately the last month hasn't been any better, with the share price down 25%. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Centum Electronics became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.
With a rather small yield of just 1.3% we doubt that the stock's share price is based on its dividend. Revenue is actually up 21% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Centum Electronics further; while we may be missing something on this analysis, there might also be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Centum Electronics's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Centum Electronics's TSR of was a loss of 22% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
It's nice to see that Centum Electronics shareholders have received a total shareholder return of 1.7% over the last year. Of course, that includes the dividend. That certainly beats the loss of about 1.8% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Before forming an opinion on Centum Electronics you might want to consider these 3 valuation metrics.
Of course Centum Electronics 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 currently trade on IN exchanges.
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