Did Changing Sentiment Drive Reliance Power’s (NSE:RPOWER) Share Price Down A Painful 83%?
Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Reliance Power Limited (NSE:RPOWER) during the five years that saw its share price drop a whopping 83%. And some of the more recent buyers are probably worried, too, with the stock falling 72% in the last year. Shareholders have had an even rougher run lately, with the share price down 61% in the last 90 days.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
View our latest analysis for Reliance Power
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Looking back five years, both Reliance Power’s share price and EPS declined; the latter at a rate of 1.9% per year. This reduction in EPS is less than the 30% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 3.25 further reflects this reticence.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Reliance Power’s earnings, revenue and cash flow.
A Different Perspective
Investors in Reliance Power had a tough year, with a total loss of 72%, against a market gain of about 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 30% over the last half decade. 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like Reliance Power better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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.
