Stock Analysis

Ujjivan Financial Services' (NSE:UJJIVAN) Shareholders Are Down 29% On Their Shares

NSEI:UJJIVAN
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It is doubtless a positive to see that the Ujjivan Financial Services Limited (NSE:UJJIVAN) share price has gained some 31% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 29% in the last three years, falling well short of the market return.

Check out our latest analysis for Ujjivan Financial Services

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 the unfortunate three years of share price decline, Ujjivan Financial Services actually saw its earnings per share (EPS) improve by 62% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 0.3% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 37% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Ujjivan Financial Services further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
NSEI:UJJIVAN Earnings and Revenue Growth September 1st 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. If you are thinking of buying or selling Ujjivan Financial Services stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Ujjivan Financial Services shareholders are down 18% for the year, (even including dividends), but the broader market is up 6.7%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 8.8% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Even so, be aware that Ujjivan Financial Services is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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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