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Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding ElringKlinger AG (FRA:ZIL2) during the five years that saw its share price drop a whopping 82%. And we doubt long term believers are the only worried holders, since the stock price has declined 54% over the last twelve months. Furthermore, it’s down 22% in about a quarter. That’s not much fun for holders.
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.
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…’ By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the five years over which the share price declined, ElringKlinger’s earnings per share (EPS) dropped by 31% each year. Notably, the share price has fallen at 29% per year, fairly close to the change in the EPS. This suggests that market participants have not changed their view of the company all that much. Rather, the share price has approximately tracked EPS growth.
This free interactive report on ElringKlinger’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Dividend Lost
It’s important to keep in mind that we’ve been talking about the share price returns, which don’t include dividends, while the total shareholder return does. In some ways, TSR is a better measure of how well an investment has performed. Over the last 5 years, ElringKlinger generated a TSR of -80%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
While the broader market lost about 0.8% in the twelve months, ElringKlinger shareholders did even worse, losing 54%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 28% 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. Before forming an opinion on ElringKlinger you might want to consider these 3 valuation metrics.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.