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The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by PETRONAS Chemicals Group Berhad (KLSE:PCHEM) shareholders over the last year, as the share price declined 34%. That's well below the market decline of 2.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 6.8% in three years. Even worse, it's down 12% in about a month, which isn't fun at all. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for PETRONAS Chemicals Group Berhad
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unfortunately PETRONAS Chemicals Group Berhad reported an EPS drop of 40% for the last year. We note that the 34% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, PETRONAS Chemicals Group Berhad's TSR for the last 1 year was -31%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!