Inversiones Aguas Metropolitanas (SNSE:IAM) Share Prices Have Dropped 51% In The Last Three Years

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. We regret to report that long term Inversiones Aguas Metropolitanas S.A. (SNSE:IAM) shareholders have had that experience, with the share price dropping 51% in three years, versus a market decline of about 21%. And over the last year the share price fell 31%, so we doubt many shareholders are delighted. Unhappily, the share price slid 1.5% in the last week.

See our latest analysis for Inversiones Aguas Metropolitanas

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, Inversiones Aguas Metropolitanas' earnings per share (EPS) dropped by 12% each year. This reduction in EPS is slower than the 21% annual reduction in the share price. So it seems the market was too confident about the business, in the past. This increased caution is also evident in the rather low P/E ratio, which is sitting at 11.05.

You can see below how EPS has changed over time (discover 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.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Inversiones Aguas Metropolitanas' TSR for the last 3 years was -40%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 9.4% in the twelve months, Inversiones Aguas Metropolitanas shareholders did even worse, losing 25% (even including dividends). 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 4% 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 Inversiones Aguas Metropolitanas better, we need to consider many other factors. For example, we've discovered 2 warning signs for Inversiones Aguas Metropolitanas that you should be aware of before investing here.

Of course Inversiones Aguas Metropolitanas 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 CL exchanges.

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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. 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.
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