As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term CEWE Stiftung & Co. KGaA (ETR:CWC) shareholders have had that experience, with the share price dropping 12% in three years, versus a market return of about 12%. More recently, the share price has dropped a further 12% in a month.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for CEWE Stiftung KGaA
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Although the share price is down over three years, CEWE Stiftung KGaA actually managed to grow EPS by 19% per year in that time. 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 is a little bizarre to see the share price down, despite a strong improvement to earnings per share. Therefore, we should look at some other metrics to try to understand why the market is disappointed.
The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that CEWE Stiftung KGaA has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for CEWE Stiftung KGaA in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, CEWE Stiftung KGaA's TSR for the last 3 years was -3.1%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!