Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. Zooming in on an example, the Clariant Chemicals (India) Limited (NSE:CLNINDIA) share price dropped 68% in the last half decade. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 42% in the last year.
View our latest analysis for Clariant Chemicals (India)
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years over which the share price declined, Clariant Chemicals (India)'s earnings per share (EPS) dropped by 34% each year. This fall in the EPS is worse than the 20% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Clariant Chemicals (India)'s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Clariant Chemicals (India), it has a TSR of -60% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that Clariant Chemicals (India) shareholders are down 40% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 9.0%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. 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. Importantly, we haven't analysed Clariant Chemicals (India)'s dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.