The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Exel Composites Oyj (HEL:EXL1V) shareholders over the last year, as the share price declined 33%. That falls noticeably short of the market return of around 9.7%. To make matters worse, the returns over three years have also been really disappointing (the share price is 32% lower than three years ago). The good news is that the stock is up 3.4% in the last week.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Unhappily, Exel Composites Oyj had to report a 91% decline in EPS over the last year. This was, in part, due to extraordinary items impacting earnings. This fall in the EPS is significantly worse than the 33% the share price fall. It may have been that the weak EPS was not as bad as some had feared. With a P/E ratio of 129.53, it's fair to say the market sees an EPS rebound on the cards.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Exel Composites Oyj's key metrics by checking this interactive graph of Exel Composites Oyj's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Exel Composites Oyj, it has a TSR of -30% for the last year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 9.7% in the last year, Exel Composites Oyj shareholders lost 30% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3.3% 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. Importantly, we haven't analysed Exel Composites Oyj's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
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 FI 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 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. Thank you for reading.