The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held Edelweiss Financial Services Limited (NSE:EDELWEISS) during the last year don’t lose the lesson, in addition to the 79% hit to the value of their shares. That’d be enough to make even the strongest stomachs churn. Even if you look out three years, the returns are still disappointing, with the share price down70% in that time. The falls have accelerated recently, with the share price down 64% in the last three months. But this could be related to the weak market, which is down 27% in the same period.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Unfortunately Edelweiss Financial Services reported an EPS drop of 56% for the last year. The share price decline of 79% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The P/E ratio of 8.66 also points to the negative market sentiment.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Edelweiss Financial Services’s key metrics by checking this interactive graph of Edelweiss Financial Services’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Edelweiss Financial Services’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. Dividends have been really beneficial for Edelweiss Financial Services shareholders, and that cash payout explains why its total shareholder loss of 79%, over the last year, isn’t as bad as the share price return.
A Different Perspective
While the broader market lost about 26% in the twelve months, Edelweiss Financial Services shareholders did even worse, losing 79% (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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 6.0% per year over five years. 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. 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. Even so, be aware that Edelweiss Financial Services is showing 3 warning signs in our investment analysis , you should know about…
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.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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