As every investor would know, you don't hit a homerun every time you swing. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame ZK International Group Co., Ltd. (NASDAQ:ZKIN) shareholders if they were still in shock after the stock dropped like a lead balloon, down 78% in just one year. That'd be a striking reminder about the importance of diversification. We wouldn't rush to judgement on ZK International Group because we don't have a long term history to look at. Even worse, it's down 8.2% in about a month, which isn't fun at all.
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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 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).
Unfortunately ZK International Group reported an EPS drop of 3.7% for the last year. The share price decline of 78% is actually more than the EPS drop. 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 2.83.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While ZK International Group shareholders are down 78% for the year, the market itself is up 4.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 3.9% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.