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Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Dr. Hönle AG (ETR:HNL) for five years would be nursing their metaphorical wounds since the share price dropped 77% in that time. We also note that the stock has performed poorly over the last year, with the share price down 29%. The falls have accelerated recently, with the share price down 31% in the last three months.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
See our latest analysis for Dr. Hönle
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 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).
Dr. Hönle has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. Other metrics might give us a better handle on how its value is changing over time.
In contrast to the share price, revenue has actually increased by 0.2% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Dr. Hönle's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Dr. Hönle had a tough year, with a total loss of 29%, against a market gain of about 17%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% over the last half decade. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Dr. Hönle (at least 1 which is potentially serious) , and understanding them should be part of your investment process.