It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Eimco Elecon (India) Limited (NSE:EIMCOELECO) share price slid 27% over twelve months. That contrasts poorly with the market return of -10%. Looking at the longer term, the stock is down 26% over three years. On top of that, the share price has dropped a further 25% in a month. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Even though the Eimco Elecon (India) share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth. It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.
Eimco Elecon (India)'s revenue is actually up 15% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Eimco Elecon (India) has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Eimco Elecon (India) in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
We've already covered Eimco Elecon (India)'s share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Eimco Elecon (India) shareholders, and that cash payout explains why its total shareholder loss of 25%, over the last year, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 10% in the twelve months, Eimco Elecon (India) shareholders did even worse, losing 25% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.3% 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. Before forming an opinion on Eimco Elecon (India) you might want to consider these 3 valuation metrics.
Of course Eimco Elecon (India) may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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.