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 Recipe Unlimited Corporation (TSE:RECP) share price slid 33% over twelve months. That falls noticeably short of the market return of around 14%. Zooming out, the stock is down 30% in the last three years. Furthermore, it's down 24% in about a quarter. That's not much fun for holders.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Recipe Unlimited had to report a 41% decline in EPS over the last year. The share price fall of 33% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Recipe Unlimited's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Recipe Unlimited's TSR, which was a 32% drop over the last year, was not as bad as the share price return.
A Different Perspective
The last twelve months weren't great for Recipe Unlimited shares, which cost holders 32% , including dividends , while the market was up about 14%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 9.6% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 5 warning signs for Recipe Unlimited that you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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