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The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Continental Aktiengesellschaft (FRA:CON) share price is down 42% in the last year. That falls noticeably short of the market return of around -5.4%. Notably, shareholders had a tough run over the longer term, too, with a drop of 35% in the last three years. Furthermore, it’s down 25% in about a quarter. That’s not much fun for holders.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Unhappily, Continental had to report a 8.0% decline in EPS over the last year. This reduction in EPS is not as bad as the 42% share price fall. This suggests the EPS fall has made some shareholders are more nervous about the business. The P/E ratio of 8.62 also points to the negative market sentiment.
This free interactive report on Continental’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Continental’s total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Continental’s TSR of was a loss of 40% for the year. That wasn’t as bad as its share price return, because it has paid dividends.
A Different Perspective
We regret to report that Continental shareholders are down 40% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 5.4%. 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 4.8% 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. Importantly, we haven’t analysed Continental’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.
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 DE 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 email@example.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. Thank you for reading.