If You Had Bought Kitex Garments' (NSE:KITEX) Shares Five Years Ago You Would Be Down 64%

We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. To wit, the Kitex Garments Limited (NSE:KITEX) share price managed to fall 64% over five long years. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 25% in the last year.

View our latest analysis for Kitex Garments

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years over which the share price declined, Kitex Garments' earnings per share (EPS) dropped by 10% each year. This reduction in EPS is less than the 18% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 11.12 further reflects this reticence.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Kitex Garments' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 35% in the last year, Kitex Garments shareholders lost 25% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. 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. For instance, we've identified 3 warning signs for Kitex Garments (1 makes us a bit uncomfortable) that you should be aware of.

But note: Kitex Garments may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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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. 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.
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