Ambika Cotton Mills' (NSE:AMBIKCO) Stock Price Has Reduced 39% In The Past Three Years

While not a mind-blowing move, it is good to see that the Ambika Cotton Mills Limited (NSE:AMBIKCO) share price has gained 25% in the last three months. But that doesn't help the fact that the three year return is less impressive. After all, the share price is down 39% in the last three years, significantly under-performing the market.

View our latest analysis for Ambika Cotton Mills

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Ambika Cotton Mills 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.

The modest 1.8% dividend yield is unlikely to be guiding the market view of the stock. The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

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

This free interactive report on Ambika Cotton Mills' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Ambika Cotton Mills, it has a TSR of -35% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Investors in Ambika Cotton Mills had a tough year, with a total loss of 2.2% (including dividends), against a market gain of about 16%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.1% 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. It's always interesting to track share price performance over the longer term. But to understand Ambika Cotton Mills better, we need to consider many other factors. Even so, be aware that Ambika Cotton Mills is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...

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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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