As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So take a moment to sympathize with the long term shareholders of XXL ASA (OB:XXL), who have seen the share price tank a massive 86% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 53%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
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 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.
During the three years that the share price fell, XXL's earnings per share (EPS) dropped by 36% each year. This reduction in EPS is slower than the 48% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on XXL's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 9.3% in the last year, XXL shareholders lost 53%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 27% per year over five years. 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 business. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for XXL (of which 1 shouldn't be ignored!) you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NO exchanges.
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