Stock Analysis

The one-year shareholder returns and company earnings persist lower as Raj Oil Mills (NSE:ROML) stock falls a further 11% in past week

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NSEI:ROML
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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Raj Oil Mills Limited (NSE:ROML) share price is down 43% in the last year. That falls noticeably short of the market return of around 11%. Because Raj Oil Mills hasn't been listed for many years, the market is still learning about how the business performs. Even worse, it's down 12% in about a month, which isn't fun at all. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

Since Raj Oil Mills has shed ₹68m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Raj Oil 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.

Unhappily, Raj Oil Mills had to report a 6.6% decline in EPS over the last year. The share price decline of 43% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.

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

earnings-per-share-growth
NSEI:ROML Earnings Per Share Growth June 2nd 2023

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Raj Oil Mills' total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Raj Oil Mills' TSR, at -22% is higher than its share price return of -43%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Given that the market gained 11% in the last year, Raj Oil Mills shareholders might be miffed that they lost 22%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 4.4%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Raj Oil Mills you should know about.

Of course Raj Oil Mills 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 Indian exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether Raj Oil Mills is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.