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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 its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Ponni Sugars (Erode) Limited (NSE:PONNIERODE) shareholders have had that experience, with the share price dropping 48% in three years, versus a market return of about 14%. And the ride hasn't got any smoother in recent times over the last year, with the price 30% lower in that time. Unhappily, the share price slid 1.5% in the last week.
See our latest analysis for Ponni Sugars (Erode)
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 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.
During the three years that the share price fell, Ponni Sugars (Erode)'s earnings per share (EPS) dropped by 10% each year. This reduction in EPS is slower than the 20% annual reduction in the share price. 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 9.03.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Ponni Sugars (Erode)'s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We've already covered Ponni Sugars (Erode)'s share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Ponni Sugars (Erode)'s TSR of was a loss of 46% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market lost about 11% in the twelve months, Ponni Sugars (Erode) shareholders did even worse, losing 29% (even including dividends) . 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7.5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Before deciding if you like the current share price, check how Ponni Sugars (Erode) scores on these 3 valuation metrics.