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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term InnoTec TSS AG (FRA:TSS) shareholders have had that experience, with the share price dropping 48% in three years, versus a market decline of about 6.8%. And the ride hasn't got any smoother in recent times over the last year, with the price 25% lower in that time. Even worse, it's down 13% in about a month, which isn't fun at all.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for InnoTec TSS
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
InnoTec TSS saw its EPS decline at a compound rate of 8.5% per year, over the last three years. The share price decline of 20% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 9.77.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
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). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for InnoTec TSS the TSR over the last 3 years was -37%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in InnoTec TSS had a tough year, with a total loss of 21% (including dividends), against a market gain of about 6.6%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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. It's always interesting to track share price performance over the longer term. But to understand InnoTec TSS better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with InnoTec TSS .