Over the last month the Kirloskar Electric Company Limited (NSE:KECL) has been much stronger than before, rebounding by 33%. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 76% in the last three years. Arguably, the recent bounce is to be expected after such a bad drop. Only time will tell if the company can sustain the turnaround.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Kirloskar Electric moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
Arguably the revenue decline of 28% per year has people thinking Kirloskar Electric is shrinking. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Kirloskar Electric's financial health with this free report on its balance sheet.
A Different Perspective
We regret to report that Kirloskar Electric shareholders are down 38% for the year. Unfortunately, that's worse than the broader market decline of 20%. 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 17% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Kirloskar Electric has 4 warning signs (and 2 which are significant) we think you should know about.
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 IN exchanges.
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