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Did Changing Sentiment Drive Edel SE KGaA's (ETR:EDL) Share Price Down By 50%?

Simply Wall St

It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Edel SE & Co. KGaA (ETR:EDL) share price slid 50% over twelve months. That's well bellow the market return of -1.2%. At least the damage isn't so bad if you look at the last three years, since the stock is down 23% in that time. The falls have accelerated recently, with the share price down 22% in the last three months.

View our latest analysis for Edel SE KGaA

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...' 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.

Unhappily, Edel SE KGaA had to report a 35% decline in EPS over the last year. The share price decline of 50% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The P/E ratio of 11.85 also points to the negative market sentiment.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

XTRA:EDL Past and Future Earnings, September 7th 2019

It might be well worthwhile taking a look at our free report on Edel SE KGaA's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Edel SE KGaA, it has a TSR of -47% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 1.2% in the twelve months, Edel SE KGaA shareholders did even worse, losing 47% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.0% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Importantly, we haven't analysed Edel SE KGaA's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.