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Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of RSWM Limited (NSE:RSWM) investors who have held the stock for three years as it declined a whopping 78%. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 47% in a year. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days.
See our latest analysis for RSWM
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
RSWM saw its share price decline over the three years in which its EPS also dropped, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. But it's safe to say we'd generally expect the share price to be lower as a result!
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between RSWM's total shareholder return (TSR) and its share price return. 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. Its history of dividend payouts mean that RSWM's TSR, which was a 77% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
RSWM shareholders are down 47% for the year, but the market itself is up 3.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9.5% per year over five years. We realise that Buffett 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 businesses. Before spending more time on RSWM it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.