Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Kewaunee Scientific Corporation (NASDAQ:KEQU) have tasted that bitter downside in the last year, as the share price dropped 52%. That's disappointing when you consider the market returned 4.2%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 35%) in that time. The falls have accelerated recently, with the share price down 15% 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.
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, Kewaunee Scientific had to report a 91% decline in EPS over the last year. This fall in the EPS is significantly worse than the 52% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. With a P/E ratio of 85.91, it's fair to say the market sees an EPS rebound on the cards.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Kewaunee Scientific's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Kewaunee Scientific'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 Kewaunee Scientific's TSR, which was a 50% drop over the last year, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 4.2% in the last year, Kewaunee Scientific shareholders lost 50% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 0.4%, 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. If you would like to research Kewaunee Scientific in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 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.