The one-year underlying earnings growth at Solvar (ASX:SVR) is promising, but the shareholders are still in the red over that time

Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Solvar Limited (ASX:SVR) have tasted that bitter downside in the last year, as the share price dropped 24%. That's well below the market decline of 4.7%. On the bright side, the stock is actually up 3.0% in the last three years. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.

After losing 11% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

Check out our latest analysis for Solvar

SWOT Analysis for Solvar

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate twelve months during which the Solvar share price fell, it actually saw its earnings per share (EPS) improve by 12%. It's quite possible that growth expectations may have been unreasonable in the past.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

We don't see any weakness in the Solvar's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Solvar has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Solvar

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Solvar's TSR for the last 1 year was -18%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Solvar had a tough year, with a total loss of 18% (including dividends), against a market gain of about 4.7%. 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. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For instance, we've identified 2 warning signs for Solvar (1 makes us a bit uncomfortable) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.