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Signet Industries Limited (NSE:SIGNETIND) shareholders should be happy to see the share price up 22% in the last week. But that doesn't change the fact that the returns over the last three years have been stomach churning. The share price has sunk like a leaky ship, down 88% in that time. So we're relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Signet Industries

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 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 unfortunate three years of share price decline, Signet Industries actually saw its earnings per share (EPS) improve by 4.0% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past. It looks to us like the market was probably too optimistic around growth three years ago. However, taking a look at other business metrics might shed a bit more light on the share price action.

The modest 1.2% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 4.8% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Signet Industries more closely, as sometimes stocks fall unfairly. This could present an opportunity.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

Take a more thorough look at Signet Industries's financial health with this free report on its balance sheet.

A Different Perspective

We regret to report that Signet Industries shareholders are down 38% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 1.9%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 32% 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. Before spending more time on Signet Industries it might be wise to click here to see if insiders have been buying or selling shares.