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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 Wacker Chemie AG (ETR:WCH) shareholders have had that experience, with the share price dropping 46% in three years, versus a market decline of about 9.8%. And over the last year the share price fell 40%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 17% in the last three months.
Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.
View our latest analysis for Wacker Chemie
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Wacker Chemie saw its EPS decline at a compound rate of 32% per year, over the last three years. This fall in the EPS is worse than the 19% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Wacker Chemie's key metrics by checking this interactive graph of Wacker Chemie's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Wacker Chemie, it has a TSR of -36% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Wacker Chemie shareholders are down 38% for the year (even including dividends), but the market itself is up 10.0%. 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 9% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Wacker Chemie (1 is concerning!) that you should be aware of before investing here.