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Precision Wires India Ltd. (NSE:PRECWIRE) shareholders might be concerned after seeing the share price drop 11% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 184% return, over that period. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 28% decline over the last twelve months.
View our latest analysis for Precision Wires India
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.
Over half a decade, Precision Wires India managed to grow its earnings per share at 23% a year. This EPS growth is remarkably close to the 23% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Precision Wires India's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Precision Wires India's TSR for the last 5 years was 230%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 4.3% in the twelve months, Precision Wires India shareholders did even worse, losing 26% (even including dividends) . Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 27%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Precision Wires India you might want to consider these 3 valuation metrics.