Did Changing Sentiment Drive PNB Housing Finance’s (NSE:PNBHOUSING) Share Price Down By 22%?

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. That downside risk was realized by PNB Housing Finance Limited (NSE:PNBHOUSING) shareholders over the last year, as the share price declined 22%. That contrasts poorly with the market return of 0.4%. Because PNB Housing Finance hasn’t been listed for many years, the market is still learning about how the business performs. On top of that, the share price has dropped a further 8.8% in a month.

Check out our latest analysis for PNB Housing Finance

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During the unfortunate twelve months during which the PNB Housing Finance share price fell, it actually saw its earnings per share (EPS) improve by 37%. It could be that the share price was previously over-hyped. It’s surprising to see the share price fall so much, despite the improved EPS. So it’s easy to justify a look at some other metrics.

Given the yield is quite low, at 1.0%, we doubt the dividend can shed much light on the share price. PNB Housing Finance managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NSEI:PNBHOUSING Income Statement, March 12th 2019
NSEI:PNBHOUSING Income Statement, March 12th 2019

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Given that the market gained 0.4% in the last year, PNB Housing Finance shareholders might be miffed that they lost 21% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 3.1%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. If you would like to research PNB Housing Finance in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like PNB Housing Finance better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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 editorial-team@simplywallst.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.