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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Castings P.L.C. (LON:CGS), since the last five years saw the share price fall 32%. And it's not just long term holders hurting, because the stock is down 27% in the last year. On top of that, the share price is down 12% in the last week.
If the past week is anything to go by, investor sentiment for Castings isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Check out our latest analysis for Castings
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).
Looking back five years, both Castings' share price and EPS declined; the latter at a rate of 0.2% per year. This reduction in EPS is less than the 7% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 9.08.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Castings' key metrics by checking this interactive graph of Castings's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Castings, it has a TSR of -5.3% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Castings shareholders are down 22% for the year (even including dividends), but the market itself is up 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.0% over the last half decade. We realise that Baron Rothschild 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Castings (1 can't be ignored!) that you should be aware of before investing here.