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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Bodegas Riojanas, S.A. (BME:RIO) shareholders over the last year, as the share price declined 21%. That's well bellow the market return of 1.2%. The silver lining (for longer term investors) is that the stock is still 4.7% higher than it was three years ago.
See our latest analysis for Bodegas Riojanas
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 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.
During the last year Bodegas Riojanas saw its earnings per share drop below zero. Buyers no doubt think it's a temporary situation, but those with a nose for quality have low tolerance for losses. Of course, if the company can turn the situation around, investors will likely profit.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Bodegas Riojanas's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Bodegas Riojanas's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Bodegas Riojanas's TSR of was a loss of 21% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market gained around 1.2% in the last year, Bodegas Riojanas shareholders lost 21%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.4% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before spending more time on Bodegas Riojanas it might be wise to click here to see if insiders have been buying or selling shares.