Volatility 101: Should Eastman Chemical (NYSE:EMN) Shares Have Dropped 48%?

Many investors define successful investing as beating the market average over the long term. 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 Eastman Chemical Company (NYSE:EMN) shareholders, since the share price is down 48% in the last three years, falling well short of the market return of around 8.0%. The more recent news is of little comfort, with the share price down 45% in a year. Furthermore, it's down 47% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 25% decline in the broader market, throughout the period.

See our latest analysis for Eastman Chemical

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years that the share price fell, Eastman Chemical's earnings per share (EPS) dropped by 1.6% each year. The share price decline of 20% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 7.53.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. As it happens, Eastman Chemical's TSR for the last 3 years was -43%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Eastman Chemical shareholders are down 42% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 13%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.8% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Eastman Chemical better, we need to consider many other factors. Take risks, for example - Eastman Chemical has 2 warning signs we think you should be aware of.

Of course Eastman Chemical 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 US exchanges.

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.

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. Thank you for reading.