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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. Unfortunately the Aumann AG (FRA:AAG) share price slid 40% over twelve months. That falls noticeably short of the market return of around -4.8%. We wouldn't rush to judgement on Aumann because we don't have a long term history to look at. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 8.2%.
Check out our latest analysis for Aumann
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 twelve months during which the Aumann share price fell, it actually saw its earnings per share (EPS) improve by 27%. It could be that the share price was previously over-hyped. It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
With a low yield of 0.6% we doubt that the dividend influences the share price much. Aumann managed to grow revenue over the last year, which is usually a real positive. 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 chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It is of course excellent to see how Aumann has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Aumann shareholders are down 40% for the year (even including dividends), even worse than the market loss of 4.8%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 1.6%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Before forming an opinion on Aumann you might want to consider these 3 valuation metrics.