It’s easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Investors in Acerinox, S.A. (BME:ACX) have tasted that bitter downside in the last year, as the share price dropped 24%. That falls noticeably short of the market return of around -0.02%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 12% in three years. It’s up 2.4% in the last seven days.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate twelve months during which the Acerinox share price fell, it actually saw its earnings per share (EPS) improve by 1.3%. It’s quite possible that growth expectations may have been unreasonable in the past. By glancing at these numbers, we’d posit that the the market had expectations of much higher growth, last year. But looking to other metrics might better explain the share price change.
We don’t see any weakness in the Acerinox’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.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Acerinox is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Acerinox in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Acerinox’s TSR for the last year was -21%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 0.02% in the twelve months, Acerinox shareholders did even worse, losing 21% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.4% 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. Before spending more time on Acerinox it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on ES exchanges.
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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.