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Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Kaveri Seed Company Limited (NSE:KSCL), since the last five years saw the share price fall 24%. In the last ninety days we’ve seen the share price slide 27%.
View our latest analysis for Kaveri Seed
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. 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).
During the unfortunate half decade during which the share price slipped, Kaveri Seed actually saw its earnings per share (EPS) improve by 11% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past. Due to the lack of correlation between the EPS growth and the falling share price, it’s worth taking a look at other metrics to try to understand the share price movement.
We don’t think that the 0.7% is big factor in the share price, since it’s quite small, as dividends go. It could be that the revenue decline of 4.7% per year is viewed as evidence that Kaveri Seed is shrinking. That could explain the weak share price.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We know that Kaveri Seed has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Kaveri Seed the TSR over the last 5 years was -21%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Kaveri Seed had a tough year, with a total loss of 12% (including dividends), against a market gain of about 0.7%. 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 4.7% 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 deciding if you like the current share price, check how Kaveri Seed scores on these 3 valuation metrics.