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Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held ASOS Plc (LON:ASC) for five whole years - as the share price tanked 87%. And we doubt long term believers are the only worried holders, since the stock price has declined 81% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 45% in the last 90 days. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
View our latest analysis for ASOS
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).
Looking back five years, both ASOS' share price and EPS declined; the latter at a rate of 6.1% per year. This reduction in EPS is less than the 34% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on ASOS' earnings, revenue and cash flow.
A Different Perspective
While the broader market lost about 4.1% in the twelve months, ASOS shareholders did even worse, losing 81%. 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 13% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - ASOS has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.