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Investors can approximate the average 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. That downside risk was realized by Sarda Energy & Minerals Limited (NSE:SARDAEN) shareholders over the last year, as the share price declined 47%. That falls noticeably short of the market return of around -0.5%. On the bright side, the stock is actually up 27% in the last three years. The falls have accelerated recently, with the share price down 35% in the last three months.
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 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.
Even though the Sarda Energy & Minerals share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped. It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.
Sarda Energy & Minerals's revenue is actually up 6.9% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Sarda Energy & Minerals stock, you should check out this FREE detailed report on its balance sheet.
What about the Total Shareholder Return (TSR)?
We've already covered Sarda Energy & Minerals'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. Its history of dividend payouts mean that Sarda Energy & Minerals's TSR, which was a 46% drop over the last year, was not as bad as the share price return.
A Different Perspective
While the broader market lost about 0.5% in the twelve months, Sarda Energy & Minerals shareholders did even worse, losing 46% (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 7.0% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Sarda Energy & Minerals 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 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.