Karooooo (NASDAQ:KARO) investors are sitting on a loss of 30% if they invested a year ago
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Karooooo Ltd. (NASDAQ:KARO) share price is down 32% in the last year. That's well below the market decline of 20%. We wouldn't rush to judgement on Karooooo because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days. Of course, this share price action may well have been influenced by the 7.1% decline in the broader market, throughout the period.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Karooooo
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Even though the Karooooo share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.
It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's easy to justify a look at some other metrics.
We don't see any weakness in the Karooooo's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Karooooo has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Karooooo
A Different Perspective
Karooooo shareholders are down 30% for the year (even including dividends), even worse than the market loss of 20%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 12% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Even so, be aware that Karooooo is showing 1 warning sign in our investment analysis , you should know about...
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 US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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