We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding PS&C Limited (ASX:PSZ) during the five years that saw its share price drop a whopping 93%. We also note that the stock has performed poorly over the last year, with the share price down 67%. The falls have accelerated recently, with the share price down 61% in the last three months.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Over five years PS&C’s earnings per share dropped significantly, falling to a loss, with the share price also lower. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. But we would generally expect a lower price, given the situation.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
PS&C shareholders are down 67% for the year, but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 40% 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. If you would like to research PS&C in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: PS&C may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 firstname.lastname@example.org. 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.