Sims (ASX:SGM investor three-year losses grow to 28% as the stock sheds AU$104m this past week

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Sims Limited (ASX:SGM) shareholders, since the share price is down 35% in the last three years, falling well short of the market return of around 18%. And over the last year the share price fell 28%, so we doubt many shareholders are delighted. Furthermore, it's down 13% in about a quarter. That's not much fun for holders.

If the past week is anything to go by, investor sentiment for Sims isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Sims

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During five years of share price growth, Sims moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

Revenue is actually up 15% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Sims more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Sims stock, you should check out this free report showing analyst profit forecasts.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Sims' total shareholder return (TSR) and its share price change, which we've covered above. 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 Sims shareholders, and that cash payout explains why its total shareholder loss of 28%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

While the broader market gained around 13% in the last year, Sims shareholders lost 27%. 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. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Sims is showing 3 warning signs in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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.