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Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Canacol Energy Ltd (TSE:CNE) investors who have held the stock for three years as it declined a whopping 76%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And over the last year the share price fell 28%, so we doubt many shareholders are delighted.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for Canacol Energy
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
During the unfortunate three years of share price decline, Canacol Energy actually saw its earnings per share (EPS) improve by 38% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Canacol Energy has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Canacol Energy stock, you should check out this FREE detailed report on its balance sheet.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between Canacol Energy's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Canacol Energy's TSR of was a loss of 71% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.