Volatility 101: Should Century Enka (NSE:CENTENKA) Shares Have Dropped 40%?

The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Century Enka Limited (NSE:CENTENKA) shareholders over the last year, as the share price declined 40%. That's disappointing when you consider the market returned -12%. Notably, shareholders had a tough run over the longer term, too, with a drop of 38% in the last three years. The falls have accelerated recently, with the share price down 23% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 9.9% in the same timeframe.

Check out our latest analysis for Century Enka

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.

Unfortunately Century Enka reported an EPS drop of 16% for the last year. This reduction in EPS is not as bad as the 40% share price fall. This suggests the EPS fall has made some shareholders are more nervous about the business. The less favorable sentiment is reflected in its current P/E ratio of 5.12.

This free interactive report on Century Enka'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'd be remiss not to mention the difference between Century Enka's total shareholder return (TSR) and its share price return. 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. Dividends have been really beneficial for Century Enka shareholders, and that cash payout explains why its total shareholder loss of 38%, over the last year, isn't as bad as the share price return.

A Different Perspective

We regret to report that Century Enka shareholders are down 38% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 1.5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Keeping this in mind, a solid next step might be to take a look at Century Enka's dividend track record. This free interactive graph is a great place to start.

Of course Century Enka may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.