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. For example, the Bhandari Hosiery Exports Limited (NSE:BHANDHOS) share price is down 36% in the last year. That’s disappointing when you consider the market returned 2.6%. Bhandari Hosiery Exports hasn’t been listed for long, so although we’re wary of recent listings that perform poorly, it may still prove itself with time. Furthermore, it’s down 32% in about a quarter. That’s not much fun for holders.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 the unfortunate twelve months during which the Bhandari Hosiery Exports share price fell, it actually saw its earnings per share (EPS) improve by 13%. Of course, the situation might betray previous over-optimism about growth.
It’s surprising to see the share price fall so much, despite the improved EPS. So it’s well worth checking out some other metrics, too.
Given the yield is quite low, at 0.9%, we doubt the dividend can shed much light on the share price. Bhandari Hosiery Exports’s revenue is actually up 3.2% over the last year. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
The company’s revenue and earnings (over time) are depicted in the image below.
Take a more thorough look at Bhandari Hosiery Exports’s financial health with this free report on its balance sheet.
A Different Perspective
Given that the market gained 2.6% in the last year, Bhandari Hosiery Exports shareholders might be miffed that they lost 36% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 32% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Bhandari Hosiery Exports may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.