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. For example, the Metsä Board Oyj (HEL:METSB) share price is down 13% in the last year. That's disappointing when you consider the market returned 14%. Even if shareholders bought some time ago, they wouldn't be particularly happy: the stock is down 13% in three years. There was little comfort for shareholders in the last week as the price declined a further 4.7%.
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.
Unfortunately Metsä Board Oyj reported an EPS drop of 9.6% for the last year. The share price decline of 13% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business. The P/E ratio of 11.02 also points to the negative market sentiment.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on Metsä Board Oyj's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Metsä Board Oyj's TSR for the last year was -8.4%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in Metsä Board Oyj had a tough year, with a total loss of 8.4% (including dividends) , against a market gain of about 14%. 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 5.0%, 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. It's always interesting to track share price performance over the longer term. But to understand Metsä Board Oyj better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Metsä Board Oyj .
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FI exchanges.
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.
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. Thank you for reading.