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As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Wacker Chemie AG (ETR:WCH) shareholders, since the share price is down 49% in the last three years, falling well short of the market return of around 15%. And more recent buyers are having a tough time too, with a drop of 27% in the last year. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 8.8%. However, this may be a matter of broader market optimism, since stocks are up 4.6% in the same time.
After losing 3.1% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
See our latest analysis for Wacker Chemie
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.
During the three years that the share price fell, Wacker Chemie's earnings per share (EPS) dropped by 41% each year. In comparison the 20% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
The graphic below depicts how EPS has changed over time (unveil 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?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Wacker Chemie the TSR over the last 3 years was -39%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 19% in the last year, Wacker Chemie shareholders lost 25% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Wacker Chemie better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Wacker Chemie you should be aware of, and 1 of them is a bit concerning.