Investors can approximate the average 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. That downside risk was realized by Network International Holdings plc (LON:NETW) shareholders over the last year, as the share price declined 26%. That's well below the market return of 6.9%. Network International Holdings may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 25% in the last three months.
Since Network International Holdings has shed US$93m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
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 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, Network International Holdings had to report a 51% decline in EPS over the last year. The share price fall of 26% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. Indeed, with a P/E ratio of 90.80 there is obviously some real optimism that earnings will bounce back.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Network International Holdings' key metrics by checking this interactive graph of Network International Holdings's earnings, revenue and cash flow.
A Different Perspective
Given that the market gained 6.9% in the last year, Network International Holdings shareholders might be miffed that they lost 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 25% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Network International Holdings has 4 warning signs we think you should be aware of.
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 GB exchanges.
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.