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Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Quaker Chemical Corporation (NYSE:KWR) have suffered share price declines over the last year. To wit the share price is down 52% in that time. We note that it has not been easy for shareholders over three years, either; the share price is down 40% in that time. Even worse, it's down 30% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 14% in the same time period.
After losing 21% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Even though the Quaker Chemical share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.
By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, last year. But looking to other metrics might better explain the share price change.
Given the yield is quite low, at 2.0%, we doubt the dividend can shed much light on the share price. In contrast, the 5.8% drop in revenue is a real concern. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So it makes a lot of sense to check out what analysts think Quaker Chemical will earn in the future (free profit forecasts) .
A Different Perspective
We regret to report that Quaker Chemical shareholders are down 51% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 4.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. 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. If you would like to research Quaker Chemical in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.