The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Dynamic Colours Limited (SGX:D6U) have tasted that bitter downside in the last year, as the share price dropped 38%. That contrasts poorly with the market return of 1.0%. Notably, shareholders had a tough run over the longer term, too, with a drop of 34% in the last three years.
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 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 Dynamic Colours reported an EPS drop of 42% for the last year. We note that the 38% share price drop is very close to the EPS drop. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Dynamic Colours's key metrics by checking this interactive graph of Dynamic Colours's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Dynamic Colours's total shareholder return (TSR) and its share price return. 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. Dynamic Colours's TSR of was a loss of 36% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 1.0% in the last year, Dynamic Colours shareholders lost 36% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2.7% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Dynamic Colours you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
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 SG 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.