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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Central Depository Services (India) Limited (NSE:CDSL) shareholders over the last year, as the share price declined 15%. That’s well bellow the market return of 5.8%. We wouldn’t rush to judgement on Central Depository Services (India) because we don’t have a long term history to look at.
View our latest analysis for Central Depository Services (India)
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 Central Depository Services (India) share price fell, it actually saw its earnings per share (EPS) improve by 10.0%. Of course, the situation might betray previous over-optimism about growth. It’s fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Given the yield is quite low, at 1.7%, we doubt the dividend can shed much light on the share price. Central Depository Services (India) 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.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Given that the market gained 5.8% in the last year, Central Depository Services (India) shareholders might be miffed that they lost 14% (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 3.8%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Before deciding if you like the current share price, check how Central Depository Services (India) scores on these 3 valuation metrics.
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.
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.