It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Nexteer Automotive Group Limited (HKG:1316) shareholders over the last year, as the share price declined 39%. That's disappointing when you consider the market returned 1.9%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 36%) in that time. The falls have accelerated recently, with the share price down 28% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unhappily, Nexteer Automotive Group had to report a 16% decline in EPS over the last year. This reduction in EPS is not as bad as the 39% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The less favorable sentiment is reflected in its current P/E ratio of 7.10.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Nexteer Automotive Group's key metrics by checking this interactive graph of Nexteer Automotive Group's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Nexteer Automotive Group's total shareholder return (TSR) and its share price change, which we've covered above. 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. Its history of dividend payouts mean that Nexteer Automotive Group's TSR, which was a 37% drop over the last year, was not as bad as the share price return.
A Different Perspective
Nexteer Automotive Group shareholders are down 37% for the year (even including dividends), but the market itself is up 1.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Importantly, we haven't analysed Nexteer Automotive Group's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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 email@example.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.