As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So take a moment to sympathize with the long term shareholders of Bhartiya International Limited (NSE:BIL), who have seen the share price tank a massive 72% over a three year period. That would be a disturbing experience. And over the last year the share price fell 39%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 33% in the last 90 days.
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. 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.
During the unfortunate three years of share price decline, Bhartiya International actually saw its earnings per share (EPS) improve by 3.2% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
It looks to us like the market was probably too optimistic around growth three years ago. However, taking a look at other business metrics might shed a bit more light on the share price action.
With a rather small yield of just 0.9% we doubt that the stock’s share price is based on its dividend. The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We’re not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Bhartiya International’s earnings, revenue and cash flow.
A Different Perspective
Bhartiya International shareholders are down 39% for the year (even including dividends) , but the market itself is up 5.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 19% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. It’s always interesting to track share price performance over the longer term. But to understand Bhartiya International better, we need to consider many other factors. For example, we’ve discovered 4 warning signs for Bhartiya International (of which 2 are major) which any shareholder or potential investor should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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