Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Raffles Education Corporation Limited (SGX:NR7) for half a decade as the share price tanked 77%. And some of the more recent buyers are probably worried, too, with the stock falling 28% in the last year. Even worse, it's down 10% in about a month, which isn't fun at all.
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. 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).
Looking back five years, both Raffles Education's share price and EPS declined; the latter at a rate of 12% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 26% per year, over the period. This implies that the market is more cautious about the business these days. The low P/E ratio of 2.56 further reflects this reticence.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What about the Total Shareholder Return (TSR)?
We've already covered Raffles Education'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 Raffles Education shareholders, and that cash payout explains why its total shareholder loss of 74%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market gained around 6.3% in the last year, Raffles Education shareholders lost 28%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Raffles Education better, we need to consider many other factors. Case in point: We've spotted 5 warning signs for Raffles Education you should be aware of, and 2 of them make us uncomfortable.
But note: Raffles Education may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG 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.