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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Emkay Taps and Cutting Tools Limited (NSE:EMKAYTOOLS) have tasted that bitter downside in the last year, as the share price dropped 24%. That's well bellow the market return of 0.3%. Emkay Taps and Cutting Tools hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Unfortunately the last month hasn't been any better, with the share price down 25%.
View our latest analysis for Emkay Taps and Cutting Tools
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 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.
Unhappily, Emkay Taps and Cutting Tools had to report a 73% decline in EPS over the last year. Readers should not this outcome was influenced by the impact of extraordinary items on EPS. The share price fall of 24% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Emkay Taps and Cutting Tools's key metrics by checking this interactive graph of Emkay Taps and Cutting Tools's earnings, revenue and cash flow.
A Different Perspective
Given that the market gained 0.3% in the last year, Emkay Taps and Cutting Tools shareholders might be miffed that they lost 24% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 15%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Before deciding if you like the current share price, check how Emkay Taps and Cutting Tools scores on these 3 valuation metrics.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.